Phased retirement is an approach taken by some employers that gives employees more flexibility in how they manage the transition from full-time employment to retirement. This could be in the form of fewer working hours or responsibilities, or even a different role.
In this guide for employers, we share practical tips on how to implement phased retirement and consider the potential legal risks to be aware of to avoid issues such as unlawful age discrimination.
How does phased retirement work?
Phased retirement refers to the use of a variety of different working arrangements to support employees through the transition from working to full retirement over a period of time.
The range of phased retirement options varies depending on the nature of the employee’s role and any existing occupational pension scheme, but can include a reduced workload or reduced working hours, with any pay reduction often supplemented by the employee receiving a portion of their pension entitlement.
While employers are not required by law to offer phased retirement options or to agree to flexible working arrangements, many occupational retirement plans will allow for partial drawdowns to help with the transition to full retirement.
The duration of any phased retirement will typically be determined by the terms of any occupational retirement plan. Phased retirement allows a pension holder to gradually reduce their working hours while also replacing the loss of income from their pension fund over a period of months or years.
Employer benefits of offering phased retirement
Employers and employees alike benefit from phased retirement schemes. Employers can benefit from phased retirement because it aids in employee retention, succession planning, and planned staff reductions. Staying in the workforce and having control over when and how they retire can provide employees with a higher standard of living in later life, as well as improve their health and wellbeing.
Your company can continue to benefit from the skills, knowledge, and experience gained by older workers by taking a flexible approach to retirement. You can create a productive, innovative, and inclusive working environment in this way, taking advantage of the opportunities and benefits that an intergenerational workforce can provide.
Can employers make employees retire?
For the majority of jobs in the UK, there is no longer a legally enforceable retirement age, and employees have the freedom to choose when they want to retire and leave the workforce.
Since the compulsory retirement age was abolished in 2011, employees who want to work longer into older age are protected by law from being forced into retirement. This means employers are not generally allowed to compel employees to retire, and dismissing someone because of their age could be considered unlawful age discrimination.
Some occupations, such as the police and the armed forces, have an upper age limit imposed by law. There are also some situations where an employer can still enforce a compulsory retirement age, provided the employer can demonstrate that a mandatory retirement age is a proportionate means of achieving a legitimate goal in order to justify it. In short, employers must have a compelling reason for imposing a retirement age, such as for health and safety reasons in a job that necessitates high levels of fitness, agility, or specific physical abilities.
In most cases, however, it will be extremely difficult for an employer to show that any upper age limit has a good business reason and is a proportionate way to achieve a legitimate goal. It will be classified as unlawful direct age discrimination if a retirement age cannot be justified.
Retirement & age discrimination
While eliminating the default retirement age benefits employees by allowing them to choose when they want to retire, the uncertainty for employers may have an impact on long-term business plans. It can also make it difficult to determine how best to address phased retirement without being discriminatory.
Under the Equality Act 2010, employers cannot raise or prompt discussion about when an employee might retire, whether during a performance appraisal or otherwise. They cannot enquire directly with an employee about their retirement plans, or make suggestions, place pressure, or coerce people to retire.
If an employee believes they have been treated unfairly, they may be able to claim for age discrimination, as well as unfair or constructive dismissal, depending on the facts, if they feel they have been forced to retire.
However, you are still free to speak with an employee about their short-, medium-, and long-term goals and ambitions. You can also openly discuss full or partial retirement with an employee who has initiated the conversation without being asked or prompted.
These discussions are best carried out as part of a formal appraisal, which will assist you in determining the employee’s future work plans. This will also give you a good opportunity to sketch out your overall strategy for the company’s future and gather data for succession planning.
Even if an employee initiates a conversation about retirement, you must not respond with ageist remarks or actions, as even unintentional ageist language can be considered unlawful discrimination.
You should also make sure you don’t treat an employee unfairly because they inquired about retirement options. This includes not putting them in a disadvantageous situation, such as denying them training or promotion based on the assumption that they are leaving.
Best practice for employers
You can implement workplace policies and practices to ensure that an employee is not discriminated against because of their age by understanding the law on retirement and recognising how discrimination can arise when managing older workers.
It’s advisable to lay the groundwork with a clear and legally compliant retirement policy that lays out the rules for retirement and informs employees about any phased retirement options available to them.
Where applicable, this policy should state that once an employee reaches pensionable retirement age, it is up to them to decide when to retire. You can look to retain and even retrain older workers by encouraging them to stay in your service if they want to, and by providing examples of any flexible working initiatives for those approaching their later career.
You should also provide equality and diversity training and guidance to managers and other employees, ensuring that you create a positive and non-discriminatory workplace culture to encourage older workers to stay.
The practical tips for phased retirement listed below can assist you in managing older workers in a positive and legally-compliant manner:
- With a clear written workplace policy, provide suitable options for a phased retirement. This could include working arrangements that are more flexible. Individuals will be encouraged to openly discuss their retirement plans if they are aware of the retirement opportunities available to them.
- Use an employee’s formal appraisal to determine their future work plans by asking open-ended questions about where they see themselves in the next few years. You can only talk about leaving dates and any work arrangements leading up to retirement once the subject has been brought up. You must not, however, attempt to persuade or force an employee to retire at any time.
- No assumptions should be made about an older worker’s ability to learn new skills or demonstrate change. Showing that you value an older worker’s experience and expertise, as well as encouraging their career advancement, is likely to result in increased productivity.
- Ensure that older employees who want to stay on at your company are not discriminated against in any way, whether intentionally or unintentionally. This could include ensuring that older employees continue to receive any training or skill development that is available to other employees.
- Address any discriminatory behaviour or ageist language used by management or employees in the workplace, and impose disciplinary measures as needed to promote a positive and non-discriminatory working environment for everyone, regardless of age.
Preventing age-related issues in the workplace
When managing older workers, you should be aware of how the protected characteristic of age is affected by or interacts with other workplace issues, in addition to phased retirement. This can include requests for flexible working hours, concerns about performance and making reasonable workplace adjustments.
Requests for flexible working hours
Employees with 26 weeks of continuous service with you have the legal right to request flexible working hours. This is a way of working that meets the needs of an employee, such as having flexible start and finish times or working fewer hours. It can also include any options for a phased retirement.
If you have a good business reason for refusing, you do not have to agree to a request; however, you must deal with the request in a reasonable manner and accommodate the employee’s needs whenever possible.
Everyone benefits from workplace flexibility, which can lead to increased productivity and employee retention. Working flexibly or part-time can also be a good way to ease into retirement, especially if an older employee has no other specific phased retirement options.
Problems with performance
It’s critical to have a clear policy in place regarding all employees’ performance and how performance issues will be handled, regardless of age.
You do not have to overlook poor performance simply because an employee is older than the rest of the team; however, you must take a consistent approach and give them a fair chance to achieve and maintain an acceptable level of performance. You should also avoid making assumptions about an older worker’s ability to improve.
You have the authority to discipline an older employee for capability and conduct issues, but you must be careful not to discriminate against them because of their age.
Reasonable adjustments
Employers are required by law to make reasonable adjustments in the workplace to ensure that employees with disabilities or long-term physical or mental health conditions are not disadvantaged in their work. This can include changes to working hours, responsibilities, or even workplace modifications.
Disability discrimination is defined as the failure to make reasonable accommodations for someone with a disability. This can include older workers who have developed a long-term age-related health condition that makes it difficult for them to perform their current job duties.
Need assistance?
Our HR specialists advise on all aspects of workforce management and planning, including guidance on retirement, as well as settlements and contentious exits, providing comprehensive advice on the options open to you as an employer and practical support through discussions to minimise legal risk. For help and advice with a specific issue, speak to our experts.
Phased retirement FAQs
What is phased retirement?
Phased retirement offers eligible workers the flexibility to take part of their pension while continuing with their job.
What are the benefits of phased retirement?
For employers, phased retirement supports succession planning by retaining key employees while replacements are trained or recruited, and supports employee well-being by allowing grater flexiblilty for workers preparing to retire.
Last updated: 30 October 2023
Author
Founder and Managing Director Anne Morris is a fully qualified solicitor and trusted adviser to large corporates through to SMEs, providing strategic immigration and global mobility advice to support employers with UK operations to meet their workforce needs through corporate immigration.
She is a recognised by Legal 500 and Chambers as a legal expert and delivers Board-level advice on business migration and compliance risk management as well as overseeing the firm’s development of new client propositions and delivery of cost and time efficient processing of applications.
Anne is an active public speaker, immigration commentator, and immigration policy contributor and regularly hosts training sessions for employers and HR professionals