What’s a “normal” retirement age?
In recent years, many employers have reduced the age at which employees are expected to retire at. But what happens if employment contracts aren’t altered to reflect this change? What does a new case say?
Standardising retirement ages
Following the“equal treatment rule”, which was introduced by the Pensions Act 1995, businesses had to amend their company pension schemes in order to standardise the retirement ages between male and female employees retiring after a certain date. For male employees, this usually had the effect of bringing the retirement age down from 65 years of age to either 62 or 63. This sounds fair enough, but what happens if the employment contracts of those affected aren’t altered to reflect these changes? What does a recent Employment Appeal Tribunal (EAT) case say?
Changing company schemes
This issue was considered in Payne v Royal & Sun Alliance Insurance Group 2005. Payne (P) was a plumber who had begun his career with Royal & Sun Alliance (RSA) in 1974. At this time the normal retirement age for a man was 65 years of age and his employment contract reflected this. However, in 1995, the company had to standardise the retirement ages between its male and female staff and introduced a new “normal” retirement age of 62. Despite this, rules were introduced which allowed P to retire after the age of 62, provided that both parties agreed. Whilst P wished to continue working until he was 65, his employment was terminated a day before his 62nd birthday (on April 7, 2004). He claimed unfair dismissal.
A right to work?
P argued that as his contract of employment remained unchanged, his contractual retirement age remained at 65. Plus, he claimed that RSA hadn’t contacted him about the lowering of his retirement age. The tribunal upheld his claim, so his employer appealed to the EAT. It argued that the normal retirement age had been changed to 62, so it was entitled to terminate his contract and P couldn’t bring an unfair dismissal claim.
What does the contract say?
The EAT held that because P’s contract hadn’t been changed and still specified a retirement age of 65, he was entitled to work until that age. This was his contractual retirement age and it’s not possible for the normal retirement age, e.g. 62 years of age, to be lower. As a result, he had been unfairly dismissed when his employment was terminated. The EAT also made the point that P’s employer hadn’t consulted with him on the changes and why they were necessary.
Changing retirement ages
If you want to amend retirement ages, you need to do more than change your company policy. However, do be aware that following new age discrimination legislation (to be introduced in October 2006), you must be able to objectively justify any decision to have a retirement age which is lower than 65, e.g. for legitimate business reasons.
Tip. If you do wish to lower your retirement age, despite these future legal changes, consult with your employees first and explain the reasoning behind it. This will be more important than ever after October 2006; so consider if it’s really necessary first. If you don’t, any attempt to vary a contract of employment unilaterally will be a breach of contract. Should an employee not accept the new terms, you risk a tribunal claim.
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