Freshfields research: Employers fear changes to retirement age will damage economic recovery

UK employers believe the removal of the default retirement age (DRA) will have a bigger impact on business than other legislative changes, according to research by Freshfields Bruckhaus Deringer.

In a survey of HR directors from the UK’s largest employers, the law firm found that 63% of respondents argue that the DRA changes will have a bigger impact on their organisations compared to other changes such as the extension of maternity and paternity leave provisions (61%) and equal treatment for agency workers (59%).

Just under three-quarters (68%) believe phasing out the DRA from 6 April has more potential to damage economic recovery and job creation in the short term compared to other legislative changes.

Over half (54%) of respondents support the government’s decision to phase out the DRA from 6 April, and 45% of those questioned agree that the government was right to enact the new legislation now rather than wait until the economy is more stable.

Caroline Stroud, co-head of Freshfields’ London employment practice, said: “There is no doubt that removing the default retirement age has led to widespread concern about the effects on the workforce and the implications for businesses and the economy as a whole.

“Despite these apprehensions, it is clear that a majority of employers accept that it is a necessary step to take as more people want to work beyond 65 or simply cannot afford to retire.”

More than two-thirds (61%) of respondents stated that maintaining expertise and skills in the workforce is the single most attractive opportunity arising from the removal of the DRA. A large proportion of those questioned (45%) also believe that there is an equal balance of cost and benefit to organisations.

Stroud added: “It is clear that removing the DRA represents a good opportunity for businesses to retain skills, expertise and talent, as well as promoting the benefits of a diverse workforce.

“While UK companies acknowledge the advantages, there needs to be a cultural shift in perceptions about the capabilities of older workers and the costs associated with them. HR will have to invest time and money in change programmes in their organisations to ensure a smooth transition.”

More than three-quarters (78%) of those questioned identified embedding cultural change in relation to effective performance management as the most critical challenge facing their organisations as a consequence of phasing out the DRA.

The majority of those surveyed also agreed that removing the DRA will certainly lead to more unpleasant and costly legal action, with 55% believing age discrimination claims will increase and 53% predicting a similar trend for unfair dismissal claims.

Stroud added: “The abolition of the DRA will almost certainly expose employers to a greater number of tribunal claims for age and disability discrimination and unfair dismissal.

“Compensation for age and discrimination claims is uncapped, so employees may feel they have a lot to gain by bringing an age discrimination or unfair dismissal claim. Employers should consider implementing company-wide training to change cultural attitudes to older workers and to avoid harassment and discrimination on the grounds of age.”

Additional findings include:

  • 49% of respondents believe the change will have little influence on their workforces’ composition.
  • 12% predict that more than half of their current workforce eligible for retirement from 30 September 2011 will continue to work.
  • 70% of respondents are not proposing to retain a compulsory contractual retirement age.
  • 64% agree that removing the DRA will have a more negative impact on employers with less than 250 staff than it will on larger employers.

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