§ The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville)My right honourable friend the Secretary of State for Trade and Industry (Ms Hewitt) has made the following Written Ministerial Statement.
Today my right honourable friend the Secretary of State for Work and Pensions and I are announcing how we will be implementing the age discrimination strand of the European employment directive (Council Directive 2000/78/EC) in relation to retirement age.
The Government have made it clear that we are strongly committed to tackling unjustified age discrimination in employment and vocational training. We believe that employees, and potential employees, must be judged on the talents and skills they bring to the workplace, and not on assumptions or stereotyped views based on their age, or apparent age. During the last few years, we have turned the tide on a trend that was seeing people drop out of the labour market before state pension age, and we have also seen increasing numbers working beyond this age. These are welcome developments that must continue.
79WSThis country cannot afford to squander the skills and experience workers of any age have to offer, and demographic changes mean that employers who cut themselves off from a proportion of the skills pool on the basis of prejudice will lose out. We want to give individuals more choices about how long they work and when they retire. We have made these points in the pensions Green Paper, Simplicity, Security and Choice: Working and Saving for Retirement (December 2002) and in the "Age Matters" consultation document on implementing the age discrimination strand of the directive (published in 2003), and elsewhere. Our "Age Positive" campaign has been working towards this since 1997, and increasingly employers themselves are realising the benefits of an age diverse workforce.
Arrangements are already in place, or will soon be in place, that facilitate more flexible approaches to retirement. With the abolition of the earnings rule in October 1989, the link between retirement and entitlement to the state pension was removed, and so people can continue working beyond state pension age and still receive their state pension. Individuals can also choose to continue working and defer their state pension, and the recent Pensions Act contains more generous options for deferral, to be introduced by 2005, including, for the first time, the option of taking a lump sum. In April 2006, tax rules preventing people drawing their occupational pension whilst continuing to work for the same employer will be abolished.
The age discrimination strand of the employment directive is due to be implemented by autumn 2006 and is an important part of this process. It will protect individuals against unfair discrimination when looking for work or in employment terms such as promotion arrangements, just because they are considered too young or too old.
The treatment of retirement age is an important aspect of the implementation of this legislation. We have consulted widely on this issue, both formally and informally, and have listened to a range of strongly held views. We have carefully balanced the arguments on all sides, and have decided that the legislation, which will come into force in autumn 2006, will provide for a national default retirement age of 65 and a right for employees to request working beyond the set retirement age. The decision to have a national default retirement age will be reviewed after five years.
In setting the default age, we have taken careful note of a number of representations we received in the course of consultations which made it clear that significant numbers of employers use a set retirement age as a necessary part of their workforce planning. While an increasing number of employers are able to organise their business around the best practice of having no set retirement age for all or particular groups of their workforce, some nevertheless still rely on it heavily.
80WSFurthermore, our consultations have demonstrated that if all employers only had the option of individually justified retirement ages at the time the legislation was introduced, this could risk adverse consequences for occupational pension schemes and other work-related benefits. Some employers would instead simply reduce or remove benefits they offer to employees to offset the increase in costs.
Until now, companies have been able to set the age at which their employees retire without any need to justify their choice. So employees may have had to retire at age 60 or even younger, whether or not they wished to continue working. Currently only 30 per cent of people are in employment by the age of 65 and a major part of the response to the ageing society will be for more people to choose to work to that age.
Following the implementation of this decision, employers will only be able to set their own retirement age for all or some of their workforce below 65 where they can objectively justify this. They would be subject to challenge and would have to show that it was appropriate and necessary to do so.
The default age is not a compulsory retirement age. Employees will be able to work beyond that age wherever they and their employers agree. Indeed, the Government welcome such agreement, and through the right to request are actively encouraging it.
This decision on retirement age has no direct implications for occupational or state pension arrangements. The Government have emphasised that they have no plans to change the state pension age once they have been equalised for men and women at 65, and we shall continue to provide for pension schemes to set normal retirement ages if they need to.
The default age will be accompanied by a right for employees who want to continue to work beyond the default age or their employer's own justified retirement age to have their request considered seriously by their employer. This right will follow the model of the right to request flexible working for parents with young children, where it has been successful in changing the culture towards more family friendly working. This policy will ensure that employers listen to employees who want to keep working and think about whether they can agree. In doing so, it will help promote a culture change including on workforce planning and the design of employee benefits, and move towards a position where fixed retirement ages are relied on only where they can be objectively justified by the employer.
We will monitor the impact of the default age from the outset. Five years from implementation we will subject to formal review the question of whether this remains appropriate. The review will be firmly grounded in evidence, and amongst other things it will look at relevant data on trends in life expectancy; the number of individuals working beyond 65; and the impact of the regulations on business, including 81WS the evolution of business practice with respect to the degree of reliance on retirement ages for workforce planning. If at the point of the review the evidence suggested that we no longer needed the default retirement age at 65, we would abolish it.
In reaching this decision, we have taken into account the responses to Age Matters consultation. An analysis of those responses is available on the DTI website at www.dti.gov.uk/er/equality/age. We have also undertaken extensive consultation with key stakeholders.
We shall consult in summer 2005 on draft regulations covering the full rights against discrimination on grounds of age in employment and vocational training. This will include details of the provisions on retirement age as well as how we propose to tackle the whole range of issues around age discrimination in recruitment, employment and vocational training. Subject to that consultation and the approval of Parliament, we will bring the legislation into force on 1 October 2006.