Compulsory retirement could be scrapped

13 July 2009

A government review into potentially scrapping the state retirement age has been brought forward by a year in response to the number of people working beyond the age of 65.

Following recommendations made in the Turner Review four years ago, the government announced the age at which people can first claim the state pension will rise from 65 to 66 in 2024, to 67 in 2034 and 68 by 2044. At the same time, it also pledged to review the default retirement age in 2011 to see if it was still needed.

However, it has now decided to hold this review next year in light of “changing demographic and economic circumstances”. While the majority of people retire before the age of 65, the government reports that 1.3 million people choose to work beyond state pension age, and many more say they would work past 65 if their employer permitted it.

Angela Eagle, minister for pensions and the ageing society, says government is taking action to “make the most of the opportunities that longer lives bring”.

She adds: “Some people prefer to take early retirement, others prefer to keep working. We want to give older people flexible retirement options. The government is responding to the changed economic landscape.  The different circumstances today - for businesses, and for individuals coming up to retirement - suggest that an earlier review is appropriate.”

The government is concerned about how the older generation can be financially supported in the future. Pensioners now outnumber school children, presenting a serious concern about the future of the state pension and other benefits, and how the government will fund these.

It has made no secret of the fact it holds ambition to scrap the compulsory retirement altogether unless individual employers can justify it.

The announcement follows remarks made by Lord Turner, the head of the city watchdog and author of the Turner Review, to the BBC in which he said the state pension age should be raised to 70 by 2030.

Current rules

It is currently unlawful for employers to discriminate against their staff on the grounds of age, unless they can justify their actions. This means that pay and other benefits should be based on skills rather than age.

The law also gives the default retirement age of 65 - therefore, compulsory retirement before people hit 65 is unlawful unless the employer can provide an objective reason. Employers can refuse to hire candidates aged over 65.

Once you hit 65, you have the right to request to continue working and your employer must consider this request. However, they retain the right to retire you as long as they follow the correct procedure.

This very issue is currently the subject of a legal battle. This week, Age Concern and Help the Aged will take their three-year legal challenge to the High Court to argue that the default retirement age is discriminatory under EU directives.

The charities say the UK government must make the case to the High Court as to why its social or employment policy objectives make having a default retirement age necessary.

Would scrapping the default retirement age benefit you?

Such a move would be positive for people who wish or need to work beyond the age of 65, as they would no longer be at risk of being forced out of their jobs.

"It cannot be right that an employer can sack someone simply for being too old," says Brendan Barber, general secretary of the Trade Union Congress. "Employees should have choice - neither forced by employers to give up work, nor forced by inadequate pensions into working longer than they should."

A recent survey by Standard Life found that 85% of people do not intend to stop work altogether after they reach retirement age. And, according to LV=, more than 900,000 people aged over 65 are still working, with a third of these working full-time. 

"Traditional notions of retirement are dead, with baby boomers more ambitious than any other generation before for a future when they will be healthier, wealthier and live for longer," says John Lawson, head of pensions policy at Standard Life.

The move would also mean bigger pensions, according to Tom McPhail, head of pension research at Hargreaves Lansdown.

His projections show that a male earning £30,000 a year and paying 10% into his pension from the age of 30, would see his pension increase from £8,380 to £12,230 if he delayed retirement from 65 to 70.

McPhail says: “Life expectancy and current savings habits mean that it is simply not realistic for many people to expect to be able to retire at 65 - the money isn’t there to pay for it. Later retirement means bigger pensions and for some people it will also help to keep them healthy and active for longer."

He adds that employers might also increase their pension contributions if the default retirement age was scrapped, so staff can afford to retire at 65.

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