Retirement Procedure for Employers UK

At a time when people are living longer, and with cost of living pressures pushing more to work beyond pensionable retirement age, employers may be looking for ways to facilitate a fuller working life for their employees, both before any decision has been made to retire, and in the run up to retirement where the employee has made the decision to leave. The following guide to the retirement procedure for employers looks at the legal obligations surrounding this process, together with best practice advice for managing older employees in a fair and non-discriminatory way — plus practical tips for positive employee engagement.

 

Section A: Law on Retirement Age

 

For most jobs, there is no longer a fixed, legal retirement age. There are some jobs that have an upper age limit set by law, such as the police or armed forces. However, following the abolition of the default retirement age of 65 in 2011, the majority of employers are no longer allowed to forcibly retire employees, or even pressure them into taking retirement.

This means that an employee doesn’t necessarily need to retire when they reach state pensionable age, and even though eligibility for any work pension will be set by the company’s occupational pension scheme, most employees have the right to decide at what age they’ll take retirement — provided they’re still fit and able to perform the work in question.

 

 

Section B: Retirement Legal Risks for Employers

 

By law, an employer is under a statutory duty not to directly or indirectly discriminate against an employee by reason of their age, either by deliberately treating them less favourably in the workplace or inadvertently putting them at a disadvantage. All employees, young and old, are afforded protection against age discrimination in relation to various key areas of employment, including retirement for older employees. Under the Equality Act 2010, employers are also under a duty not to harass or victimise someone for a reason connected to retirement.

This means that an employee will be protected against unfair treatment at work — such as ageist remarks or discriminatory actions, including if this leads to either forced resignation or a decision to dismiss the employee — if the’ve opted not to retire at a certain age.

For employees who are not yet ready to retire, assumptions should not be made by employers about the abilities of an older worker to learn new skills. Employers must therefore ensure that older employees continue to be offered any training opportunities available to other staff. By showing that the experience and expertise of older employees is valued, and by encouraging their career progression, this is likely to lead to greater levels of performance and productivity.

If an employee is treated less favourably, or subjected to a detriment, by reason of their age, an employer may find themselves facing a tribunal complaint for unlawful discrimination under the 2010 Act. Where an employer has forced an employee into retirement, or the employee has been dismissed because of their age, in circumstances where this cannot be objectively justified, they may also be subject to a claim for constructive or unfair dismissal.

Equally, for employees who have raised the possibility of retirement with their employer, all available career options should be explored, including phased retirement. Adopting a flexible approach to retirement can offer several advantages, not only for employees, but also for employers — from helping with succession planning to ensuring that the business continues to benefit from the skills, knowledge and experience of an older employee for just that little bit longer.

In theory, employers may be able to set a compulsory retirement age, but only where they can legally prove the need for an upper age limit in the context of their business. The employer must be able to show that this is a proportionate means of achieving a legitimate aim, for example, for health and safety reasons in a role that requires high levels of physical fitness and agility. As legally proving the need for a retirement age can be extremely difficult to do, few employers will seek to prescribe the age at which their employees should retire.

Even though it remains open to an employer to take disciplinary action against an older employee for capability issues, and even to dismiss that person if they’re no longer able to do their job for reasons connected with age-related incapacity, employers must be careful not to act unfairly. This includes not making assumptions about an individual’s capacity to perform the work in question or their ability to improve performance levels with appropriate support.

 

Section C: Retirement Procedure for Employers

 

Where a set retirement age is not specified by way of a strict occupational requirement or, in rare cases, prescribed by the employer, it will be a matter for the individual employee to decide when they want to retire. If an employee raises with their employer or line manager that they’ve been considering the possibility of retirement, for example, during an appraisal or one-to-one, only then can discussions be entered into with the employee about how this will happen. The employee must volunteer the information without being asked or prompted.

In most cases, therefore, an employer must not:

 

a. raise or prompt any discussion about when an employee might retire

 

b. ask an employee questions around when they might be planning to retire

 

c. suggest that an employee retires, either directly or indirectly, including making any suggestions that they go part-time or switch to another role because of their age

 

d. put pressure on an employee to retire or force them into retiring, for example, through coercive conduct, or via any other direct or indirect means, including encouraging the idea

 

In circumstances where an employee has initiated a discussion about retirement, the employer or line manager can begin to talk openly with that employee about the potential options available to them, such as full or partial retirement, and the procedures involved. Ideally, any options and procedures should be set out within a written retirement policy.

A workplace policy on retirement will help to provide clear guidance for both managers and employees on how retirement will be dealt with, and what steps can be taken once the issue has been voluntarily raised. The policy, where applicable, should also make it clear that any decision to retire is for the employee to make, having reached pensionable retirement age.

 

Section D: Best Practice for Employers

 

Given the potentially serious consequences around mismanagement of older employees in the context of retirement, it’s important that employers take proactive steps to minimise the legal risks of getting this wrong. In addition to putting in place a written retirement policy and procedure, there are a number of ways in which employers can help to ensure that employees nearing retirement age are treated fairly, and not discriminated against, because of this.

 

1. Provision of various options for phased retirement

 

Phased retirement refers to the implementation of various different flexible working arrangements to ease the transition for an employee from working full-time to giving up working life altogether. A phased retirement approach is commonly used as a human resources tool to allow full-time employees to adopt flexible working, by working part-time, or changing their working pattern or otherwise reducing their workload, while beginning to draw retirement benefits.

By providing employees with greater choice about how they manage their retirement, such as gradually cutting back on their hours or amending their duties, this will help to provide a positive and supportive environment in which retirement can be discussed. Ideally, these options should be clearly set out within any workplace retirement policy, making it clear to employees that, where at all possible, every step will be taken to accommodate any arrangements to best suit their needs once a decision has been made to retire.

Many occupational retirement schemes will make express provision for partial drawdowns to facilitate the transition into full retirement. It’s also possible to delay claiming the state pension and the deferral rules have been simplified here. The range of phased retirement options can vary depending on the nature of the employee’s role and any occupational pension scheme in place, so it’s important that employees are signposted to the right information so that they can make informed decisions around their retirement.

 

2. Use formal appraisals for succession planning purposes

 

Formal appraisals are an ideal way of identifying an employee’s future work plans for succession planning purposes. Even though an employer cannot lawfully raise the issue of retirement, or ask questions around an employee’s retirement plans, they can ask about an employee’s aims and ambitions in either the short, medium and long-term. These discussions will provide an opportunity for the employer to help shape the needs of their business, for example, by identifying the employee’s work preferences moving forward, without being seen to coerce or encourage an employee into a retirement decision.

However, during the course of an appraisal, an employee must only be asked open-ended questions, for example, those designed to prompt discussions of where an employee sees themselves over the next few years. Equally, different sets of questions must not be used for employees of different ages, as this treatment, of itself, may be construed as discriminatory.

Only once the topic of retirement has been raised by an employee can any discussion be entered into about leaving dates and the types of working arrangements leading up to it.

 

3. Provide suitable equality and diversity training

 

Anyone responsible for dealing with employee appraisals, or who otherwise may be tasked with addressing issues around retirement, should be suitably trained in this area. This will help to minimise the risk of employees feeling pressured into a retirement decision.

Age-equality and diversity training will also help to educate managers around the risks of unfair treatment if an employee chooses to take retirement once they’re eligible to do so. In the same way that older employees are protected from unfair treatment if they opt not to retire at a certain age, an employee must not be treated less favourably because they’ve inquired about or are thinking about retiring, for example, by denying them training opportunities or promotion based on the assumption that they’ll soon be leaving.

By understanding the law on retirement— and recognising how discrimination can arise in managing older employees, with the different ways in which an employer can fall foul of the law — this will help managers to deal with retirement in a fair and non-discriminatory way.

 

4. Use formal grievance & disciplinary procedures

 

In cases where an employee believes that they’ve been subject to unfair treatment for a reason connected to their age, or ageist comments or discriminatory conduct, there should be a suitable procedure in place for filing a formal complaint. To reduce the risk of matters escalating into a tribunal claim, employees should also be encouraged to use of this procedure.

By resolving any matters internally, this can help employers to identify the root cause of any retirement-related issues, and to find a suitable resolution without recourse to legal proceedings. In some cases, disciplinary action may need to be taken against line managers, or other members of staff, for any discriminatory language or behaviour used in the workplace, imposing disciplinary sanctions where appropriate. This will also help to promote a positive and non-discriminatory working environment for everyone, regardless of age.

 

Section E: Summary

 

In summary, the issue of retirement should largely be one that is led by the employee – unless specific legal provisions are in place for compulsory retirement – or the employer faces a range of legal risk.  When dealing with retirement procedures, employers will need to comply with their legal obligations in areas such as age discrimination, and providing adequate notice. Planning ahead, including managing knowledge transfer and addressing pension arrangements, can also significantly reduce disruptions and support both retiring employees and the organisation. By following best practices and adhering to legal requirements, businesses can handle retirement transitions efficiently and maintain a positive work environment. Regularly reviewing and updating retirement procedures ensures ongoing compliance and prepares the organisation for future changes.

 

Section F: Need Assistance

 

Our employment lawyers can help with all aspects of workforce management and planning, including guidance on retirement procedures, settlement agreements and contentious exits. Working closely with our specialists in HR, we provide comprehensive advice on the options open to you as an employer and practical support through discussions to minimise legal risk through the retirement process. For help and advice with a specific issue, speak to our experts.

 

Section G: Retirement Procedure FAQs

 

How do you deal with an employee who is retiring?

Only once an employee has raised the topic of retirement can the employer enter into discussions about leaving dates and the types of working arrangements leading up to it. This could be either full or partial requirement.

 

How do I prepare my employees for retirement?

The best way to prepare employees for retirement is to implement a written workplace policy setting out the options available to an employee for full or partial retirement in the context of pensionable benefits, with the procedure(s) involved. Encourage open communication to understand the employee’s plans and how these can be aligned with the organisation’s needs and policies.

 

When an employee retires what is given?

What an employee is entitled to receive on retirement will depend on their employment contract and any occupational pension scheme. They should usually give you the same contractual notice as if they were resigning, unless the contract states otherwise.

 

When can an employer retire an employee?

Following the abolition of the default retirement age of 65 in 2011, most employers are no longer allowed to forcibly retire employees or even pressure them into taking retirement, unless the employer can objectively justify a compulsory retirement age.

 

What is a retirement procedure?

A retirement procedure outlines the steps and processes an employer should follow when an employee reaches retirement age. It includes legal obligations, notification processes, and best practices for managing the transition smoothly.

 

Are there legal requirements for retirement procedures in the UK?

Yes, there are legal requirements, including compliance with age discrimination laws and ensuring that retirement policies do not unlawfully force employees to retire. Employers must also adhere to regulations concerning notice periods and pension arrangements.

 

How much notice should be given before an employee’s retirement?

Employers should provide adequate notice as specified in the employment contract or company policy. Generally, it is considered good practice to give at least three to six months’ notice to allow for a smooth transition and planning.

 

What steps should be taken to prepare for an employee’s retirement?

Preparation involves communicating with the employee about their retirement plans, planning for knowledge transfer, and ensuring that succession plans are in place. Early planning helps mitigate disruptions and facilitates a smooth transition.

 

What should be included in a retirement notification?

A retirement notification should clearly state the employee’s expected retirement date, outline any required procedures or paperwork, and provide information about final settlements, pension arrangements, and any farewell arrangements.

 

How should employers handle requests for flexible retirement?

Employers should consider requests for flexible retirement on a case-by-case basis, balancing the needs of the employee with the operational requirements of the business. It’s important to comply with relevant legislation and to provide a fair and transparent process for such requests.

 

What are the common pitfalls in managing retirement procedures?

Common pitfalls include failing to provide adequate notice, not planning for knowledge transfer, and not addressing pension or benefits issues properly. To avoid these issues, employers should have clear procedures in place and ensure that all legal and administrative requirements are met.

 

How can employers ensure a smooth transition for retiring employees?

A smooth transition can be achieved by having a structured plan for knowledge transfer, providing support to the retiring employee, and ensuring that all administrative and legal tasks are completed on time. Clear communication and careful planning are key.

 

What should be done after an employee has retired?

After an employee has retired, employers should handle any remaining administrative tasks, such as finalising pension arrangements and updating records. It’s also beneficial to maintain a positive relationship with retirees for future networking and potential consultancy roles.

 

Where can employers find more information on retirement procedures?

Employers can find additional information through resources such as ACAS, the UK Government’s official website, and professional HR and legal advisory services. These resources offer guidance on best practices and legal requirements for managing retirement procedures effectively.

 

Section H: Glossary

 

 

Term	Definition
Retirement Procedure	A structured process that employers follow when an employee reaches retirement age, including legal requirements and best practices for transition.
Age Discrimination	The unfair treatment of employees based on their age, which is prohibited under UK employment law.
Notice Period	The amount of time an employee or employer must give before ending employment or retiring, as specified in the employment contract or company policy.
Succession Planning	The process of preparing for the replacement of employees who are retiring or leaving, ensuring that their duties are covered and knowledge is transferred.
Flexible Retirement	A request by an employee to alter their working hours or conditions as they approach retirement, potentially allowing for part-time work or gradual retirement.
Pension Arrangements	The plans and schemes in place for providing financial support to employees after they retire, including contributions and final settlements.
Knowledge Transfer	The process of passing on skills, experience, and information from a retiring employee to other staff members to ensure continuity and minimise disruption.
Retirement Notification	Formal communication from an employer or employee regarding the planned retirement date and related procedures.
Final Settlement	The process of concluding any outstanding payments or entitlements to an employee upon their retirement, including any accrued benefits.
Administrative Tasks	The various paperwork and procedural steps required to finalise an employee’s retirement, including updating records and handling final payments.
Legal Compliance	Adhering to employment laws and regulations related to retirement, such as avoiding age discrimination and fulfilling notice period requirements.
Farewell Arrangements	Activities or events organised to mark the retirement of an employee, which may include farewell parties or presentations.
Retirement Benefits	Financial and non-financial benefits provided to employees upon retirement, including pensions, bonuses, or other retirement-related perks.
HR Advisory Services	Professional services offering guidance on human resources matters, including retirement procedures, legal compliance, and best practices.

 

 

Section I: Additional Resources

 

ACAS – Advisory, Conciliation and Arbitration Service
https://www.acas.org.uk/retirement
ACAS provides comprehensive guidance on retirement procedures, including legal requirements and best practices for employers.

 

GOV.UK – Retirement and Pensions
https://www.gov.uk/retirement
The UK Government’s official website offers information on retirement age, pensions, and legal obligations for employers.

 

Pension Wise – Retirement Guidance
https://www.pensionwise.gov.uk
Pension Wise provides free, impartial guidance on pensions and retirement planning. Their resources can help both employers and employees understand pension options and retirement planning.

 

Chartered Institute of Personnel and Development (CIPD) – Retirement Planning
https://www.cipd.co.uk/knowledge/fundamentals/emp-law/retirement
CIPD provides resources and best practices on managing retirement procedures and planning for employee transitions.

 

The Pensions Regulator
https://www.thepensionsregulator.gov.uk
The Pensions Regulator offers guidance on pension schemes and employer responsibilities regarding pensions and retirement planning.