Firms facing chaos over ageism rules

Some human resources professionals are like headless chickens as they struggle to get to grips with the new age discrimination legislation, causing problems for staff around the traditional retirement age, who may be weighing up their options.

From April, no-one can be asked to retire at 65 without triggering a claim for compensation for age discrimination. In other words: to get rid of you, the employer must pay you redundancy, whatever age you are.

Up until April, firms can still issue six-month notices warning of an intention to retire staff, which will catch some employees who are 65 between April and October. However, if you do not receive one of these before the end of March then you will be able to continue working.

But you can still be dismissed because you are not up to the job, which has led to fears that without a 65 cutoff, more staff below that age will be asked to leave. Furthermore, some companies may attempt to exempt themselves from the legislation.

Institute of Directors spokesman Alistair Tebbit said: "Thousands of retirements will now be managed via the dismissal process. No wonder HR departments are tearing their hair out."

Regulations published to date will allow companies to require staff to leave without any redundancy payoff at a given age, if they can "objectively justify" their action. Similarly, they will be able to pick off individuals they feel no longer up to the job.

Robin Ellison, head of strategy at lawyers Pinsent Masons, said: "Employees may get a tap on the shoulder and find their ability to continue doing the job called into question. Indeed, now companies can no longer rely on retirement to deal with the problem of under-performance, that tap may now come at 64, or even younger."

It has never been more important to know your employment rights, according to Paul McGlone, a principal at Aon Hewitt, who advises: "You need to know exactly what your rights are before you have any discussions with an employer. Otherwise you might go in and be told 'Don't believe everything you read in the newspapers, the retirement age at this company is still 65.' Some employees will accept that without challenge and go."

Unfortunately, the law has not yet been clarified, so companies are trying to manage the change without the full regulations at their fingertips. Many expect the change in the law to trigger an explosion in cases at employment tribunals.

Confederation of British Industry spokesman Ben Digby believes the practical application of the law will not be clear until a number of employer decisions have been fought through employment tribunals and the courts.

Digby said: "We are concerned that some employees will now face the prospect of a stressful and not very dignified end to their career."

The government has published two tests for "objective justification" for asking staff to retire at a given age. There must be legitimate grounds such as health and safety.

However, the second test requires that compulsory retirement is also a "proportionate" measure.

But no-one knows what this means. Digby said: "There are no precedents and no common law. The supposition is these matters will now be hammered out in tribunals."

Some companies are expected to initiate capability assessments, when they can no longer rely on natural retirement as a way of managing older staff out of the workforce. This could have unpleasant ramifications for younger staff as well. Some firms will handle this sensitively as part of the annual employee appraisal. At others, employees may be asked to jump through new hoops.

Getting information about your options may also prove a trial. Mercer partner Deborah Cooper said: "The difficulty for HR departments is that normally they would start having conversations with their employee as they approached 65. Now they are worried that initiating such a discussion could result in a discrimination claim. So the normal framework of discussions has disappeared and nothing has been put in its place."

Ellison added: "If you want to go on working, just sit tight and do nothing."

Your pension

Your options, if you want to go on working and are a member of a final salary pension, will depend on the rules of the scheme. Many have a 65 retirement age, and some will require you to leave the scheme at that point. Others will allow you to continue accruing benefits. Some will not allow you to draw a pension while you continue to work for the company, while others will provide a late retirement uplift.

Cooper said: "If only a handful of employees continue to work, employers may be relaxed about allowing them to continue accruing pension benefits.

"However, if substantial numbers become a material burden to the pension fund, employers may seek to impose a maximum number of years in the scheme.

"You may have the right to stay on at work, but that doesn't mean the shape of your remuneration package can't change. The question is, will this be discriminatory?"

It might be deemed discriminatory if all other employees under 65 are members of the scheme. However, as is more likely, an employer may offer membership of alternative arrangements, such as a defined contribution pension.

However, you need to weigh up carefully whether you will be better off continuing to pay into the scheme or opting for the late retirement uplift. This will involve carefully calculating whether one or two years additional accrual will benefit you more or less than a late retirement uplift.

With defined contribution or money purchase pensions, you and your employer make contributions and you use this money, hopefully enhanced by investment returns, to buy an annuity which provides your pension.

In theory, working longer merely means you contribute for longer and buy the annuity later. However, some schemes may have a predetermined age at which the pension should be taken. There may be penalties for not doing so, particularly in the case of insurance-based schemes. You need to explore these penalties and the best option for protecting your savings.

Another thing to watch is, many of these arrangements include a lifestyling strategy which involves switching your savings into lower-risk investments up to ten years before retirement, to safeguard against a crash. Hargreaves Lansdown's Laith Khalaf says: "Lifestyling usually kicks in five years before retirement, but sometimes it can be a ten-year plan."

Lower risk will also mean a potentially lower return. Those planning to work beyond 65 should consider delaying the lifestyling strategy.

Other benefits

While the law prevents age discrimination, this does not extend to additional benefits, such as medical and health insurance, which can be significantly more expensive for older workers, and can be withdrawn without triggering a discrimination case.

McGlone explains: "You can argue with your boss about this, but there won't be much you can do about it.

"Some employers may be prepared to go on subsidising this cover-up to a cap, after which staff pay the additional premiums themselves."