When an employee retires
Employees can generally retire when they want to. As such, you can only operate a compulsory retirement age if you can objectively justify it. This is required under age discrimination legislation.
This guide aims to give you an overview of what to do when an employee retires and gives details of where you can get more information and advice.
Retirement ages and procedures
Employees can generally retire when they want to.
To help with your workforce planning, if you don't already do so, you should consider setting up regular individual informal workplace discussions with all employees.
Then, when you are having such discussions with older employees, you may get the opportunity to raise the issue of their future plans, which may include plans to retire.
However, any direct question such as "are you planning to retire in the near future?" is best avoided. If the employee indicates they wish to retire, there is no problem in you talking to them about the date of their retirement and any working arrangements leading up to it.
You can only operate a compulsory retirement age if you can objectively justify it. Justification of direct age discrimination must be based in 'social policy objectives' such as those related to employment policy, the labour market or vocational training. This means that the aims must be of a 'public interest nature' rather than purely individual reasons particular to one employer's situation.
The first thing you would need to do is ask yourself why you need a compulsory retirement age. Set out your reasons clearly on paper.
You should then ask the following questions:
- Do you have real hard evidence which can justify your reasoning or is it just based on a preference or assumption?
- Are there easier, simpler non-discriminatory ways of achieving the same results?
As well as establishing a legitimate aim an employer would also need to demonstrate that the compulsory retirement age is a proportionate means of achieving that aim.
The test of objective justification is not an easy one to pass and it would be necessary to provide evidence if challenged at a tribunal (or under the Labour Relations Agency Arbitration Scheme which can now be used as an alternative forum for resolving disputes); assertions alone would not be enough.
If you do operate a compulsory retirement age that you can objectively justify, you must follow at least the minimum statutory disciplinary and dismissal procedure. This means:
- giving the employee plenty of notice of the date you intend to retire them
- arranging a meeting to discuss their retirement
- considering any request they make to work beyond the compulsory retirement
- allowing them an appeal if they do not accept your decision
You can also still dismiss an employee of any age on, for example, the grounds of:
- Capability, eg where they have been absent for a long time due to ill-health or - despite you giving them opportunities to improve - their performance is not up to standard. Good procedures are vital here. See the Labour Relations Agency's Code of Practice on disciplinary and grievance procedures.
- Redundancy, ie where there is no longer work for the employee to do.
Read more on dismissing employees.
Pay and pensions
Whatever date the employee retires, during the employee's final few weeks of work, you will also need to:
- calculate their final payment - see pay - an overview of obligations
- calculate any entitlements due under employee share or share option schemes - particularly relevant regarding early retirement - read GOV.UK guidance on early retirement
- check the rules of their pension scheme - see pensions and retirement
Emotional and practical issues
Even though an employee can generally choose when to retire, preparing for retirement may still be a difficult time emotionally for them.
Therefore, you should consider helping them in the run-up to their retirement - see providing support for a retiring employee.
Remember that you may also need to retrieve company property, eg security pass, company car, laptop computer.
Pensions and retirement
When employees retire, make sure they receive any occupational pension(s) that they are due.
If employees retire at state pension age, they will need to make a claim for the state pension or consider options to defer it.
Currently, the state pension age for men is 65. On 6 April 2010, the state pension age for women started to increase gradually from 60 to 65. From 2019, the State Pension age increases for both men and women to reach 66 by October 2020. The government is planning further increases, which will raise the State Pension age from 66 to 67 between 2026 and 2028.
To check the incremental age increases in pension age for both men and women you can check your state pension age.
It would be helpful to confirm that they have received a claim pack from The Northern Ireland Pension Centre, which will normally write to invite a claim around four months before a person reaches state pension age. A claim pack will be unavailable prior to the four month period.
However, if your employee hasn't received a claim pack or wants more information on the state pension, including how to defer it, they should contact The Pension Service. Northern Ireland Pension Centre contact details.
If you run an occupational scheme and your employee is a member of it, write to the trustees or managers of the scheme to let them know the retirement date. The trustees or managers will then:
- work out what the employee will be entitled to on retirement
- write to the employee shortly before retirement with details of any tax-free lump sum that they may be entitled to
- provide details of the amount of pension payable and the date at which the first payment is to be made
If your scheme is a money purchase arrangement that is not run by a pension provider, eg an insurance company, the employee should be advised that they have the right to buy an annuity from a provider other than the one running the pension scheme. This is an alternative to receiving a pension from your scheme.
If any employee thinks they may have lost track of an old pension from a previous workplace, they may find it helpful to contact the Pension Tracing Service.
Your employees may also benefit from independent financial advice. The Pensions Advisory Service provides employer information and guidance on pensions.
You may therefore wish to consider providing this advice as an employee benefit. You can do this as a tax-free benefit as long as it is made available to all employees and costs less than £150 per employee per year.
Providing support for a retiring employee
Even though employees can generally choose when to retire, preparing for retirement may still be a difficult time emotionally and financially for them.
There are a number of ways in which you can help an employee make the transition from employment to retirement, including:
- Allowing them to gradually reduce their working hours for a period of time before their retirement. This will give the retiring employee a chance to develop other interests outside work. However, reducing working hours in the few years leading up to retirement could reduce the pension an employee would receive.
- Providing opportunities to attend a pre-retirement course for counselling and/or financial advice.
- Providing information on the state pension and other entitlements - see pensions and retirement.
- Organising a retirement party for them and buying them a retirement gift.