Considered in Grand Committee
My Lords, the regulations before the Committee today fulfil the Government’s pledge to quickly phase out the default retirement age. They repeal the legislation which currently allows an employer to dismiss an employee—provided that certain administrative procedures are followed—solely for the reason that they have reached the age of 65.
In order that employers who currently use the default retirement age have time to adjust, the repeals are subject to transitional arrangements. These arrangements allow retirements to proceed where individuals have been notified of retirement before 6 April and are 65 or above before 1 October this year.
The regulations also introduce a new exception to age discrimination legislation for group insurance benefits provided by employers for their employees. This includes, for example, income protection, health cover and life assurance. We have provided an exception because the consultation on removing the default retirement age identified a real risk that group insurance benefits might be reduced or removed. These benefits are greatly valued by many employers and employees and can provide important social benefits, for example enabling cover to be provided to people who would otherwise find it difficult to obtain individual cover. It is in everyone’s interest to ensure that these employer-provided benefits are not withdrawn. The exception therefore makes it lawful to withdraw such benefits only for employees at age 65 or over. This minimum age for withdrawing insured benefits will increase in line with increases to state pension age.
There is growing recognition that older people make an increasingly valuable contribution to the economy. This is without doubt a good thing. The over-50s currently make up just under a quarter of the workforce, but they will comprise nearly a third by 2020. Furthermore, latest figures from the Office for National Statistics show that the employment rate for over-65s has increased from 7.9 per cent to 9.1 per cent in the last year. Clearly, older workers will play a key part in the economic recovery and in the United Kingdom’s future economic growth. With increasing longevity, demographic change and skills shortages, it is crucial that we make full use of all available skills and experience, regardless of age, and we encourage older people to carry on working. It would be a shameful waste to ignore the contribution and potential of older workers.
I hope that what I have said so far has struck a chord with Members of this House. We all know that age is not an indication of whether someone is able to do their job well. Research shows that productivity does not decrease with age in the vast majority of jobs, and that older and younger workers complement each other. Furthermore, it is wrong to suggest that increased employment of older people means unemployment for younger people. International studies show that, if anything, a higher employment rate for older people tends to increase the rate for younger people.
Extending working life will also play an important part in reducing pensioner poverty and ensuring people are able to fulfil their expectations of retirement. A single man with a good employment history who decides to work one year beyond state pension age can increase his retirement income by up to 10 per cent.
Many employers, meanwhile, are recognising the importance of retaining the valuable skills and experience of older workers to help them through, and out of, the recession. Research shows that older workers can bring such qualities as commitment, punctuality and accuracy to their roles, as well as having a more responsible attitude to health and safety. These attributes are valued by employers across the board.
Some employers have asked how they might manage their workforce if they cannot retire people without inviting claims of unfair dismissal on age grounds. There is concern about long-serving but underperforming employees in their 60s; my response here is that employers should manage poor performance consistently across the workforce. To do otherwise is harmful to productivity and unfair on other employees.
Another area of concern surrounds retirement plans; with the default retirement age procedures no longer in place—so the argument runs—employers will be worried about raising the topic of an employee’s retirement plans. There have been calls for such conversations to be legally protected in some way. Again, this is not necessary. For those businesses that do not operate with set retirement ages, ACAS has published helpful guidance explaining how to handle the retirement of their staff. It is perfectly possible for employers to have open and honest discussions with staff, as we set out in the recently published employers’ charter, while avoiding claims of age discrimination.
Open dialogue can bring wider benefits, including discussing possible changes of role, work patterns or mentoring arrangements. A clear majority of businesses —two-thirds—already operate successfully without fixed retirement ages. Others will need to adapt. That is why we have provided guidance and best practice case studies on how businesses that currently use the default retirement age can manage without it.
In summary, abolishing the default retirement age will ensure that older people have greater choice and opportunity to work up to the age of 65 and beyond. In turn, this will boost the UK’s labour supply and contribute to economic growth. Older people bring a wealth of talent and experience to the United Kingdom’s labour market. For these reasons, I commend the regulations to the Committee. I beg to move.
I am glad to support this measure, which is certainly welcome. The Minister has been very clear in his remarks supporting this, as indeed was the case in the other place when it was discussed.
There is no question that many people when they reach the age of 65 will welcome the opportunity of being able to carry on working. As the Minister has said, the experience and talents they have gained over many years can often be a great loss to the business community, if they have to retire when they feel they can still contribute to the workplace.
I would like personally to attest to this particular measure. The Minister referred to this Chamber, this place where we work in Parliament. The Minister may perhaps have been looking at me, I hope, when he said that many people here operate quite effectively after retirement age. In my case, certainly, being just short of 10 years beyond the retirement age, I welcome it very much indeed as an opportunity to contribute with some of the experience that I have gained—for my own personal satisfaction and, I hope, for others.
It is also very much a pleasure for me to support this measure, having been in the small business sector. There is no question that when I ran my small business, I was more than happy for people to work—sometimes it turned out to be part-time—beyond retirement age. The statistics that back this measure indicate that so many people feel that they have something of value to offer and so many people are appreciated for those reasons. I am glad to support the measure wholeheartedly. I thank the Minister for a clear explanation of what we are discussing today.
My Lords, I, too, support this legislation. It is safe to say that it is an idea whose time has come. Some would say that it is not before time. As a member of the previous Government, I can say that we had planned a review, but this Government have anticipated that process, and probably rightly so. All the evidence of increased longevity, the contribution to the labour market, productivity and performance that the Minister drew to our attention are valid points.
I have one or two questions and comments. I understand the need to introduce the exception to make the group insurance benefits legal, but I wondered whether someone at some point might attempt to say that there is nevertheless discrimination by not allowing those benefits to include them. Have the Government looked at that aspect?
I must admit that I fell into the group of people who felt that doing away with this would have an impact on youth employment, until I looked at the impact assessment. In some ways I would describe it as counterintuitive, but it is hard to argue with what seems to be an overwhelming weight of evidence. I say only that I still feel that it would be valuable to monitor the situation, but one cannot quarrel with the evidence of the impact assessment.
I have a comment about flexibility. In this country we still have what I call “cliff-edge retirement”: for the most part, you are fully employed and then you are retired. This is something that the noble Lord, Lord Cotter, referred to in passing when he talked about people becoming part-time. There is not a lot of evidence of that. The situation tends to be what I have just described. Once upon a time we in the trade union labour movement thought about the idea of a flexible decade of retirement where we did not fix on a particular age. We ought to be thinking about which legislation would enable employers to be more flexible in employment prior to retirement because of the impact of pensions and so on.
I agree with the points that the Minister made about performance management, appraisal procedures and the need for open dialogue. There has been a lot of talk in the press recently about the number of employment tribunals. If you examine how many times the tribunals succeed, you will find that it is mainly because employers do not operate procedures and do not practise open dialogue. If there were more of that going on instead, that would be good. Looking at things like raising the amount of time relating to unfair dismissal from one year to two will not solve the problem. The Minister is much more on the right lines when she talks about the importance of having the right personnel procedures.
I looked at the reasoning behind introducing the regulations with guidance rather than a code of practice. Again, I understand why the Government have decided that, but I ask that we keep that one under review to see whether in fact guidance is sufficient in these circumstances. Those comments and questions aside, though, I enthusiastically welcome the Government’s approach.
My Lords, I am grateful to my noble friend Lord Cotter for his words of support and his welcome to all parts of this piece of work. I was particularly pleased to see the satisfaction and pleasure that he is getting out of the period—it can be only one or two years—since he passed the age that we have been referring to. Now that we are working as a coalition, I hope that we will see many more years of work out of him.
The noble Lord, Lord Young, said that his party had anticipated this progress. That is true and we expected him to say that. I am delighted that in broad terms he, too, is welcoming of these words today.
In response to the question on exception for employer-provided insured benefits, we are introducing the insured-benefits exemption in recognition that the default retirement age of 65 is currently used by insurers as a trigger point at which they can legitimately cease to provide insured benefits. The exception will allow them to continue to operate in this way once the default retirement age has gone because otherwise there is a risk that premiums will become too high and employers will cease to provide those benefits. I am sure the noble Lord would agree that is in no one’s interest. The exception will apply initially to employees aged 65 and above and will rise in line with the state pension age. I hope the noble Lord finds that answer helpful.
Monitoring the impact is good advice. We will monitor the impact through available resources such as the Labour Force Survey. We are committed to a review after five years. I enjoyed the noble Lord’s description of cliff-edge retirement. I had not thought of that phrase but it aptly describes what happens when we do not think through how things can work as people go forward in their working life. The Japanese or the Chinese have a system whereby they bring in a younger worker alongside an older worker and gradually the job changes in time and expression as between them they use a mentoring system. I am not sure we are that sophisticated yet.
I am grateful to both noble Lords who participated in the debate. Your Lordships’ House has, as always, displayed a keen interest in the default retirement age since its inception under the previous Administration in 2006. The Government are moving swiftly and decisively to fulfil the commitment to abolish it while providing new guidance and transitional arrangements to help businesses adjust. We are giving greater freedom to older people who want to remain economically active to contribute to the UK’s future growth. I commend the regulations to the Committee.