What is retirement?
Retirement is when an employee chooses to leave the workforce permanently. Instead of earning a salary from a job, they typically live on income from their private pension(s), the State Pension, savings, and any other investments they might have (eg income from rental properties).
What is the retirement age?
There is no single, fixed retirement age in the UK. The previous 'default retirement age' of 65 was scrapped in 2011. This means employers cannot assume their employees will retire at a specific age.
It's generally up to an individual employee to decide when they want to retire. Their decision is often influenced by two key factors:
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private and workplace pensions - most pension schemes set a minimum age when you can start taking your money, which is usually 55 or older
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the State Pension Age - this is the earliest age someone can start claiming their state pension. It's currently 66 for both men and women and is scheduled to rise in the future
Employees can continue working after they reach the State Pension Age if they wish to.
For more information, see the government’s guidance on early retirement and the state pension.
Can an employer force an employee to retire?
As a general rule, you can't force an employee to retire just because they've reached the State Pension Age or any other specific age. Doing so is known as 'compulsory retirement' and would likely be considered age discrimination and unfair dismissal. However, there is a rare exception to this rule.
Justifying compulsory retirement
You may be able to justify forcing an employee to retire if you can show that it's a 'proportionate means of achieving a legitimate aim'. This is a high legal bar to meet.
A 'legitimate aim' must be a genuine business need. Examples could include:
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health and safety reasons - for example, in jobs that are very physically demanding, where an age limit is needed to protect the public or the employee
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workforce planning - for example, to create a balanced age structure in the workforce or to promote recruitment and promotion opportunities for others
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complying with the law - for certain jobs, like judges, the law sets a compulsory retirement age
Even if you have a legitimate aim, you must also show that compulsory retirement is 'proportionate'. This means you must prove that it's the only and most appropriate way to achieve your aim and that there aren't less discriminatory alternatives.
Following a fair procedure
If you believe you can justify compulsory retirement, you must still follow a fair dismissal procedure and give the employee proper notice. Failing to do this could lead to a successful claim for unfair dismissal. You should consider creating a formal retirement policy to ensure you follow a consistent and fair process. Use our Bespoke drafting service to help make your retirement policy.
How should employers talk to staff about their retirement plans?
You can ask employees about their future plans, including potential retirement, but these conversations must be handled carefully to avoid discrimination. Any discussions should be:
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part of a routine and consistent process for all staff, not just targeted at older workers
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held in good faith to help with workforce planning
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entirely voluntary for the employee
You should never pressure an employee to give you a retirement date or make them feel like they are being pushed out of their job.
What happens when an employee works past the State Pension Age?
If an employee continues to work after reaching the State Pension Age, there are a few things for employers to keep in mind:
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National Insurance (NI) - employees over the State Pension Age no longer have to pay NI contributions, though the employer's contributions continue. You'll need to see proof of their age (like a passport or birth certificate) to ensure their pay is processed correctly
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pensions - they can start claiming their state pension and usually their workplace pension while they continue to work
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performance - you must manage their performance in the same way you would for any other employee. If an employee is incapable of doing their job, you can consider dismissal, but you must follow a fair capability procedure. Age must not be a factor in this decision
Can an employee retire early due to ill health?
Yes, an employee may be able to retire early if they are permanently unable to carry on working because of a long-term illness or disability. The rules for this are usually set out in the workplace pension scheme. Often, the employee will need to provide medical evidence to show that they can't continue in their role and that reasonable adjustments to their job aren't possible.
What is phased retirement?
Phased retirement allows employees to smoothly transition from full-time work to full retirement. It involves changing their working arrangements, for example, by reducing their hours or workload, while often starting to draw a portion of their pension to supplement their reduced salary.
This can be a great option for both employers and employees. It allows the business to retain valuable skills and experience for longer and helps the employee adjust to retirement gradually.
If you need to create or update your policies on equal treatment in the workplace, you can make an Equal opportunities policy. Also consider adopting a bespoke retirement policy.
If you have any questions about retirement, don't hesitate to Ask a lawyer.
