Retirement age is not a topic many business owners spend much time mulling over. The general assumption amongst most is that it’s the same as the pension age (now 66 in Ireland). The rationale behind this is understandable. After all, who wants to work any longer than they have to?
With this in mind, Irish businesses for years have included retirement clauses in their employment contracts, stipulating the end of a worker’s employment when they reach that golden number.
However, new legislation, passed back in December is changing all that. The Equality (Miscellaneous Provisions) Act 2015, which came into effect in January, makes a number of amendments to employment equality legislation. Most notable among these are the changes to the compulsory retirement age.
The net result of this is that to include a compulsory retirement clause, an employer must be able to objectively justify it. Retirement clauses in existing employment contracts will, for all intents and purposes, become void unless they adhere to this requirement. And in situations where no compulsory retirement age is set, employees will be entitled to work-on until they see fit to retire. Failure to comply with the amendments could see business owners being brought before the employment equality tribunal and the labour court for unfair dismissal.
The fact that we’re living longer, the cost of living is higher, we have more debts and a creaking Government Pension Fund mean more and more people are choosing to work past their pension age. This new legislation can be seen as a coup for equality campaigners, as it's not forcing people to work longer, but giving them the option to do so if they wish.
However, while greater equality is something all business should strive towards, the ramifications of this amendment for business owners and employers are quite serious. In businesses with no compulsory retirement age, or those that cannot objectively justify it, such issues may include:
Succession Planning Challenges
Motivated, driven, younger employees may quickly find themselves hitting a promotional ceiling where they can go no further until more senior, older members of the workforce decide to step down from their position.
The lack of a clear career path within an organisation may result in a business’s top talent leaving and joining competitor companies, where their ambitions can be realised. For smaller businesses, this could have a hugely detrimental impact.
Inability to Attract Talent
Running parallel to the issue above, is the challenge is attracting talent. Young professionals may end up shirking smaller businesses, or those with an ageing staff, for fear of stalling their career progression.
Reduced Productivity
For many who decide to continue working past retirement age, it will be because of the passion they have for the job they do. However, there will also be those who hang on, doing the bare minimum, just so they can claim their pay-cheque at the end of the month. The drain this could have on productivity, not to mention employee morale, is something employers need to give serious consideration to.
3 Steps to Protecting Your Business from Challenges
Finally, employers must fully consider the repercussions of retaining an employee past the specified age of retirement. While there is nothing in the legislation to prevent an employer from offering a fixed term contract, provided it is objectively justified, it sets a precedent for other employees to challenge the normal age of retirement in the future.
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With this in mind, Irish businesses for years have included retirement clauses in their employment contracts, stipulating the end of a worker’s employment when they reach that golden number.
However, new legislation, passed back in December is changing all that. The Equality (Miscellaneous Provisions) Act 2015, which came into effect in January, makes a number of amendments to employment equality legislation. Most notable among these are the changes to the compulsory retirement age.
The net result of this is that to include a compulsory retirement clause, an employer must be able to objectively justify it. Retirement clauses in existing employment contracts will, for all intents and purposes, become void unless they adhere to this requirement. And in situations where no compulsory retirement age is set, employees will be entitled to work-on until they see fit to retire. Failure to comply with the amendments could see business owners being brought before the employment equality tribunal and the labour court for unfair dismissal.
The fact that we’re living longer, the cost of living is higher, we have more debts and a creaking Government Pension Fund mean more and more people are choosing to work past their pension age. This new legislation can be seen as a coup for equality campaigners, as it's not forcing people to work longer, but giving them the option to do so if they wish.
However, while greater equality is something all business should strive towards, the ramifications of this amendment for business owners and employers are quite serious. In businesses with no compulsory retirement age, or those that cannot objectively justify it, such issues may include:
Succession Planning Challenges
Motivated, driven, younger employees may quickly find themselves hitting a promotional ceiling where they can go no further until more senior, older members of the workforce decide to step down from their position.
The lack of a clear career path within an organisation may result in a business’s top talent leaving and joining competitor companies, where their ambitions can be realised. For smaller businesses, this could have a hugely detrimental impact.
Inability to Attract Talent
Running parallel to the issue above, is the challenge is attracting talent. Young professionals may end up shirking smaller businesses, or those with an ageing staff, for fear of stalling their career progression.
Reduced Productivity
For many who decide to continue working past retirement age, it will be because of the passion they have for the job they do. However, there will also be those who hang on, doing the bare minimum, just so they can claim their pay-cheque at the end of the month. The drain this could have on productivity, not to mention employee morale, is something employers need to give serious consideration to.
3 Steps to Protecting Your Business from Challenges
- Ensure that a specific retirement age is clearly stated in employment contracts and this this age has been set in agreement with employees.
- Provide an objective justification with the specified retirement age. These justifications must achieve a legitimate aim and be reasonable and proportionate in their application. Some examples of objective justification may be on the grounds of health and safety, intergenerational fairness and dignity (where issues of ability and under-performance might otherwise be brought into question).
- Stipulate in the clause that the employer reserves the right to review the compulsory retirement age depending on the changing needs of the business.
Finally, employers must fully consider the repercussions of retaining an employee past the specified age of retirement. While there is nothing in the legislation to prevent an employer from offering a fixed term contract, provided it is objectively justified, it sets a precedent for other employees to challenge the normal age of retirement in the future.
For more helpful HR tips and advice, CLICK HERE to sign up to our monthly newsletter.
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