What phased retirement means for employers

Phased retirement refers to ways in which an employer can provide older workers with greater choice about the way in which they manage the transition from full-time work to leaving work altogether. This could be by way of reduced hours or duties, or even a different job role.

The following guide for employers provides advice and practical tips on how to manage older workers in the context of phased retirement.

What is the law on retirement age?

Due to the abolition of the default retirement age of 65 in 2011, employers are no longer usually allowed to forcibly retire employees. This means that a dismissal based on an employee’s age can amount to unlawful discrimination.

For employees wanting to remain in work longer, the law now provides clear protection from being forced into retirement. Further, flexibilities around private pensions, for example, the ability for partial drawdown, offer new opportunities for employees to plan and phase their retirement. It is also possible to delay claiming the state pension and the deferral rules have been simplified here.

This means that many employees are now choosing to work beyond pensionable age, either for financial reasons or because they are simply not ready to retire.

When can an employer set a retirement age?

For most job roles there is no longer a legally set retirement age, where employees have the right to decide the age at which they will retire. There are some jobs that have an upper age limit set by law, such as the police or armed forces. There are also limited circumstances in which an employer can still force an employee to retire at a certain age. This is known as a compulsory retirement age.

To justify a compulsory retirement age, you must be able to show that it is a proportionate means of achieving a legitimate aim. In short, you must have a really good reason why, for example, for health and safety reasons in a job that requires high levels of fitness and agility or certain physical abilities.

In most cases, however, it will be extremely difficult for an employer to be able to demonstrate a good business reason for any upper age limit, and that this is a proportionate way to achieve a legitimate aim. If a retirement age cannot be justified, it will be classed as unlawful direct age discrimination.

What is phased retirement?

Phased retirement refers to the implementation of various different working arrangements to ease the transition for an individual from working full-time to giving up working life altogether. It is commonly used as a human resources tool to allow full-time employees to work part-time, or change their working pattern while beginning to draw retirement benefits.

The range of phased retirement options can vary depending on the nature of the employee’s role and any occupational pension scheme in place, but can include a reduced workload or reduced working hours, where any reduction in pay is often supplemented by the employee receiving part of their pension entitlement.

While employers are not legally bound to provide an employee with phased retirement options or to agree to flexible working arrangements, many occupational retirement schemes will make express provision for partial drawdowns to facilitate the transition into full retirement.

The length of any phased retirement will usually depend on the terms of any occupational retirement scheme. Phased retirement can be used to allow a pension holder to gradually cut back on their working hours, replacing the associated loss in income from their pension fund over several months or years.

Why is phased retirement important for your business?

Phased retirement schemes have many advantages for both employers and employees. For employers, phased retirement can help with staff retention, succession planning and planned staff reductions. For employees, staying in work and taking control of when and how they retire can give them a better standard of living in later life, as well as benefit their health and well-being.

By adopting a flexible approach to retirement, your business can continue to benefit from the skills, knowledge and experience gained by older workers over the years. In this way you can create a productive, innovative and inclusive working environment, unlocking the opportunities and leveraging the benefits that can come from an intergenerational workforce.

What are the risks of age discrimination with phased retirement?

Whilst the abolition of the default retirement age is a huge plus for employees, allowing them to choose when they retire, the uncertainty for employers can impact long-term business plans. It can also create difficulties in knowing how best to address the issue of phased retirement without being discriminatory.

Under the Equality Act 2010, an employer must not:

• Raise or prompt any discussion about when an employee might retire, either during a performance appraisal or otherwise
• Ask an employee direct questions about when they are planning to retire
• Suggest they retire, put pressure on them to retire or force them to retire.

If an employee believes that they have been treated unlawfully, they can make a claim to an employment tribunal for age discrimination, as well as unfair or constructive dismissal where they have felt forced to retire.

That said, it is still open to you to talk to an employee about their aims and ambitions in the short, medium and long term. You can also talk openly with an employee about full or partial retirement where they themselves have initiated this discussion without being asked or prompted.

These conversations are best pursued within the context of a formal appraisal, helping you both to identify the employee’s future work plans. This will also provide you with a suitable opportunity to outline your general plan for the future of the business and gather vital information for succession planning.

However, even where an employee instigates a conversation about retirement, you must not respond with any discriminatory remarks or actions, as even the unintentional use of ageist language can amount to unlawful discrimination.

You should also ensure that you do not go on to treat an employee unfairly because they have asked about possible retirement. This includes not subjecting them to any detriment, such as denying them any training opportunities or promotion based on the assumption that you think that they are leaving.

How should employers approach phased retirement?

By understanding the law on retirement and recognising how discrimination can arise in managing older workers, you can implement workplace policies and practices to ensure an employee is not discriminated against by reason of age.

Assumptions should not be made about the abilities of an older worker to learn new skills or to demonstrate change. By showing that you value the experience and expertise of an older worker, and by encouraging their career progression, this is likely to lead to greater productivity.

It is sensible to set foundations through a clear and legally compliant retirement policy, setting out the rules relating to retirement and providing guidance for employees on any phased retirement options available to them.

This policy, where applicable, should make it clear that the decision as to when to retire is for the employee to make once they reach pensionable retirement age. By positively encouraging older workers to remain in your service if they so choose, and by providing examples of any flexible working initiatives for those approaching their later career, you can look to retain and even retrain older workers, reaping the benefit of their experience for longer.

You should also provide training and guidance to managers and other employees in equality and diversity, ensuring that you create a positive and non-discriminatory workplace culture to encourage the retention of older workers.

How should employers approach other age-related workplace issues?

In addition to phased retirement, when managing older workers you should also be aware of how the protected characteristic of age can be affected by or interact with other workplace issues. This can include:

• Flexible working requests
• Performance related issues
• Reasonable adjustments in the workplace.

Flexible working requests

All employees have the legal right to request flexible working where they have 26 weeks of continuous service with you. This is a way of working that suits an employee’s needs, for example, having flexible start and finish times, or working fewer hours. It can also include any phased retirement options.

As an employer, you do not necessarily have to agree to a request if you have a good business reason for your refusal, but you must deal with the request in a reasonable manner and accommodate the employee’s needs wherever possible.

Flexibility in the workplace is of benefit to everyone and can lead to greater productivity and employee retention. Working flexibly or part-time is also often a good bridge into retirement, especially where there are no other specific phased retirement options available to an older employee.

Performance-related issues

It is important to have in place a clear policy relating to the performance of all workers, and how performance issues will be managed, regardless of age.

You do not need to ignore under-performance simply because an employee is older than other staff, although you must adopt a consistent approach, giving them a fair chance to reach and maintain an acceptable standard. You must also not make assumptions about the capability of an older worker to improve.

It remains open to you to take disciplinary action against an older employee for capability and conduct issues, although you must be careful not to discriminate against them by reason of their age.

Reasonable adjustments in the workplace

By law, employers must make reasonable adjustments within the workplace to ensure workers with disabilities or long-term physical or mental health conditions, are not substantially disadvantaged when doing their jobs. This can include altered hours, amended duties or even workplace adaptations.

Any failure to make reasonable adjustments for someone suffering from a disability will be classed as disability discrimination. This can include older workers who have developed a long-term age-related health condition that affects their ability to carry out their existing job role.

Practical tips for phased retirement

The following practical tips for phased retirement can help you to manage older workers in a positive and lawful way:

• Provide suitable options for a phased retirement by way of a clear written workplace policy. This could include flexible working arrangements. By making individuals aware of the retirement opportunities available to them, they will be encouraged to openly discuss their retirement plans.
• Use an employee’s formal appraisal to identify their future work plans, asking open questions that prompt discussions of where employees see themselves over the next few years. Only once the topic of retirement has been raised can you discuss leaving dates and any working arrangements leading up to it. You must not, however, seek to encourage or coerce an employee into taking retirement at any point.
• Ensure older employees who wish to continue working in your business are not discriminated against in any way, either deliberately or inadvertently. This could include ensuring that older workers continue to be offered any training and skills development available to other staff.
• Address any discriminatory conduct or ageist language used by either management or staff in the workplace, imposing disciplinary measures where appropriate. In this way, you will promote a positive and non-discriminatory working environment for everyone, regardless of age.

Legal disclaimer

The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.