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Global Employment HR e-briefing: Compulsory retirement: an international comparison

  • United Kingdom
  • Employment law - HR E-Brief

11-04-2014

Setting the scene: compulsory retirement in the UK

There is no doubt that in the UK the average person is living longer and birth rates are falling. This has resulted in growing concern about the adequacy of our pension arrangements as retirees are set to draw their pensions for longer and lower birth rates mean there are fewer workers contributing to the system to support them.  In the UK, such concerns have resulted in an increase in the state pension age and the phased introduction of an auto-enrolment regime which requires employers to enrol eligible employees in an approved pension scheme and make mandatory minimum contributions to such schemes.  In a number of other countries, particularly in Europe, there has been a similar reaction, with Italy, France, Germany, Poland and Spain all increasing the age at which retirement benefits can be claimed. 

In the UK, the concern about the need to work longer to save for retirement has also resulted in changes to an employer’s ability to compulsorily retire its employees.  On 6 April 2011, the default retirement age of 65 at which employers could lawfully require their employees to retire was abolished.  Compulsory retirement amounts to unlawful age discrimination unless the retirement can be objectively justified as being a proportionate means of achieving a legitimate aim.  As a result, the majority of UK employers have chosen to abandon compulsory retirement altogether.

How does the UK position compare with other countries? 

  • In Spain, labour reforms introduced in February 2012 outlawed compulsory retirement.  There is a similar prohibition in the Czech Republic
  • In Poland, not only is it unlawful to compulsorily retire an employee but employers are also very restricted in their ability to terminate an employee’s employment for any reason during the 4 years before they reach state pension age (currently 65 years and 3 months for men and 60 years and 3 months for women, gradually increasing to 67 years).  The main exceptions to this are termination for a serious breach by the employee or termination by mutual agreement.   Dismissal for any other reason during this 4 year period (even if entirely unrelated to the employee’s age) will likely be unlawful.   
  • In the US, compulsory retirement of an employee is also unlawful save for certain top level employees who, in some states, can be forced to retire at a set age (in most states no earlier than 65).   
  • In Canada, whilst technically speaking the law enables an employer to justify a mandatory retirement age, in practice, similar to the UK, justification is very difficult and many employers do not operate compulsory retirement.  
  • In France, it is possible, by following a prescribed procedure, to request an employee to retire when they reach the age of 65 (from November 2016 gradually increasing to 67) and can benefit from a full pension.  However, if the employee does not agree, an employer cannot require them to retire until they reach the age of 70.   
  • By contrast, in Germany compulsory retirement is possible if the employee’s employment contract expressly provides for automatic termination on reaching the employer’s mandatory retirement age.  This must be state pension age, which is gradually increasing from 65 to 67.   
  • Similar to Germany, in South Africa it is possible to specify a mandatory retirement age in an employment contract, a separate policy or the rules of a company retirement fund.  Unlike in the other jurisdictions surveyed, there is no lower limit on this age. 
  • In Italy, if an employee meets a certain age (currently, 66 years and 3 months for men and gradually increasing to this age from 62 years and 3 months for women) and has paid minimum social security contributions for 20 years, then an employer may lawfully terminate their employment.  
  • In Brazil compulsory retirement at state pension age (currently, 65 for men and 60 for women) is lawful.   
  • In China, once an employee reaches the statutory minimum retirement age (60 for men and 55 for women, or interestingly also age 50 if the woman is in a management position), they no longer hold employment status (instead becoming a “service provider”).  This means the employee can be compulsorily retired subject to the approval of the local social insurance bureau. 

In some jurisdictions the rules may be relaxed where an individual is a senior executive or they do not have employment status. 

Comment
The results show that the UK is not alone in having placed considerable limitations on employers’ ability to compulsorily retire employees.  Even in those jurisdictions where retirement is permitted, the age at which this can be done is often regulated by reference to that country’s pension age and/or the ability to fund retirement as a result of pension contributions made to date.  In most jurisdictions, those ages are increasing. 

These changes underline the need for employers to have an age management strategy, to help them to respond to workforce ageing and demographic change. In a survey by TAEN (The Age and Employment Network, a UK body), 45 per cent of employers across Europe had a strategy in place. In 27 per cent of companies there was commitment at company board level to an age management strategy.

As more countries are faced with an aging population and an increasing need to fund retirement benefits, it seems likely that the number of employers with such a strategy can only rise.

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