Phased Retirement Guide for Employers

Phased retirement is an approach taken by some employers that gives employees more flexibility in how they manage the transition from full-time employment to retirement. This could be in the form of fewer working hours or responsibilities, or even a different role.

In this guide for employers, we share practical tips on how to implement phased retirement and consider the potential legal risks to be aware of to avoid issues such as unlawful age discrimination.

 

Section A: How does Phased Retirement Work?

 

Phased retirement refers to the use of a variety of different working arrangements to support employees through the transition from working to full retirement over a period of time.

The range of phased retirement options varies depending on the nature of the employee’s role and any existing occupational pension scheme, but can include a reduced workload or reduced working hours, with any pay reduction often supplemented by the employee receiving a portion of their pension entitlement.

While employers are not required by law to offer phased retirement options or to agree to flexible working arrangements, many occupational retirement plans will allow for partial drawdowns to help with the transition to full retirement.

The duration of any phased retirement will typically be determined by the terms of any occupational retirement plan. Phased retirement allows a pension holder to gradually reduce their working hours while also replacing the loss of income from their pension fund over a period of months or years.

 

Section B: Employer Benefits of Phased Retirement

 

Employers and employees alike benefit from phased retirement schemes. Employers can benefit from phased retirement because it aids in employee retention, succession planning, and planned staff reductions. Staying in the workforce and having control over when and how they retire can provide employees with a higher standard of living in later life, as well as improve their health and wellbeing.

Your company can continue to benefit from the skills, knowledge, and experience gained by older workers by taking a flexible approach to retirement. You can create a productive, innovative, and inclusive working environment in this way, taking advantage of the opportunities and benefits that an intergenerational workforce can provide.

 

Section C: Can Employers Make Employees Retire?

 

For the majority of jobs in the UK, there is no longer a legally enforceable retirement age, and employees have the freedom to choose when they want to retire and leave the workforce.

Since the compulsory retirement age was abolished in 2011, employees who want to work longer into older age are protected by law from being forced into retirement. This means employers are not generally allowed to compel employees to retire, and dismissing someone because of their age could be considered unlawful age discrimination.

Some occupations, such as the police and the armed forces, have an upper age limit imposed by law. There are also some situations where an employer can still enforce a compulsory retirement age, provided the employer can demonstrate that a mandatory retirement age is a proportionate means of achieving a legitimate goal in order to justify it. In short, employers must have a compelling reason for imposing a retirement age, such as for health and safety reasons in a job that necessitates high levels of fitness, agility, or specific physical abilities.

In most cases, however, it will be extremely difficult for an employer to show that any upper age limit has a good business reason and is a proportionate way to achieve a legitimate goal. It will be classified as unlawful direct age discrimination if a retirement age cannot be justified.

 

Section D: Retirement & Age Discrimination

 

While eliminating the default retirement age benefits employees by allowing them to choose when they want to retire, the uncertainty for employers may have an impact on long-term business plans. It can also make it difficult to determine how best to address phased retirement without being discriminatory.

Under the Equality Act 2010, employers cannot raise or prompt discussion about when an employee might retire, whether during a performance appraisal or otherwise. They cannot enquire directly with an employee about their retirement plans, or make suggestions, place pressure, or coerce people to retire.

If an employee believes they have been treated unfairly, they may be able to claim for age discrimination, as well as unfair or constructive dismissal, depending on the facts, if they feel they have been forced to retire.

However, you are still free to speak with an employee about their short-, medium-, and long-term goals and ambitions. You can also openly discuss full or partial retirement with an employee who has initiated the conversation without being asked or prompted.

These discussions are best carried out as part of a formal appraisal, which will assist you in determining the employee’s future work plans. This will also give you a good opportunity to sketch out your overall strategy for the company’s future and gather data for succession planning.

Even if an employee initiates a conversation about retirement, you must not respond with ageist remarks or actions, as even unintentional ageist language can be considered unlawful discrimination.

You should also make sure you don’t treat an employee unfairly because they inquired about retirement options. This includes not putting them in a disadvantageous situation, such as denying them training or promotion based on the assumption that they are leaving.

 

Section E: Best Practice for Employers

 

You can implement workplace policies and practices to ensure that an employee is not discriminated against because of their age by understanding the law on retirement and recognising how discrimination can arise when managing older workers.

It’s advisable to lay the groundwork with a clear and legally compliant retirement policy that lays out the rules for retirement and informs employees about any phased retirement options available to them.

Where applicable, this policy should state that once an employee reaches pensionable retirement age, it is up to them to decide when to retire. You can look to retain and even retrain older workers by encouraging them to stay in your service if they want to, and by providing examples of any flexible working initiatives for those approaching their later career.

You should also provide equality and diversity training and guidance to managers and other employees, ensuring that you create a positive and non-discriminatory workplace culture to encourage older workers to stay.

The practical tips for phased retirement listed below can assist you in managing older workers in a positive and legally-compliant manner:

 

a. With a clear written workplace policy, provide suitable options for a phased retirement. This could include working arrangements that are more flexible. Individuals will be encouraged to openly discuss their retirement plans if they are aware of the retirement opportunities available to them.

b. Use an employee’s formal appraisal to determine their future work plans by asking open-ended questions about where they see themselves in the next few years. You can only talk about leaving dates and any work arrangements leading up to retirement once the subject has been brought up. You must not, however, attempt to persuade or force an employee to retire at any time.

c. No assumptions should be made about an older worker’s ability to learn new skills or demonstrate change. Showing that you value an older worker’s experience and expertise, as well as encouraging their career advancement, is likely to result in increased productivity.

d. Ensure that older employees who want to stay on at your company are not discriminated against in any way, whether intentionally or unintentionally. This could include ensuring that older employees continue to receive any training or skill development that is available to other employees.

e. Address any discriminatory behaviour or ageist language used by management or employees in the workplace, and impose disciplinary measures as needed to promote a positive and non-discriminatory working environment for everyone, regardless of age.

 

Section F: Preventing Age-Related Issues in the Workplace

 

When managing older workers, you should be aware of how the protected characteristic of age is affected by or interacts with other workplace issues, in addition to phased retirement. This can include requests for flexible working hours, concerns about performance and making reasonable workplace adjustments.

 

1. Requests for flexible working hours

 

Working flexibly or part-time can offer a practical way to transition into retirement, especially if an older employee has no other specific phased retirement options. Flexible working arrangements can be used to meet the needs of the employee, such as having flexible start and finish times or working fewer hours, as part of a phased retirement, while the employer retains some control over the change in working arrangement and terms of the transition.

All employees now have the legal right to request flexible working hours from the first day of employment. Under the new regulations and Acas guidance, employers must respond to any statutory flexible working request within two months, during which time they have to discuss the request with the employee if they intend not to approve it, inform the employee of their decision, and complete an appeal process if they permit appeals.

 

 

2. Problems with performance

 

It’s critical to have a clear policy in place regarding all employees’ performance and how performance issues will be handled, regardless of age.

You do not have to overlook poor performance simply because an employee is older than the rest of the team; however, you must take a consistent approach and give them a fair chance to achieve and maintain an acceptable level of performance. You should also avoid making assumptions about an older worker’s ability to improve.

You have the authority to discipline an older employee for capability and conduct issues, but you must be careful not to discriminate against them because of their age.

 

3. Reasonable adjustments

 

Employers are required by law to make reasonable adjustments in the workplace to ensure that employees with disabilities or long-term physical or mental health conditions are not disadvantaged in their work. This can include changes to working hours, responsibilities, or even workplace modifications.

Disability discrimination is defined as the failure to make reasonable accommodations for someone with a disability. This can include older workers who have developed a long-term age-related health condition that makes it difficult for them to perform their current job duties.

 

Section G: Need Assistance?

 

Our HR specialists advise on all aspects of workforce management and planning, including guidance on retirement, as well as settlements and contentious exits, providing comprehensive advice on the options open to you as an employer and practical support through discussions to minimise legal risk. For help and advice with a specific issue, speak to our experts.

 

Section H: Phased Retirement FAQs

 

What is phased retirement?

Phased retirement offers eligible workers the flexibility to take part of their pension while continuing with their job.

 

What are the benefits of phased retirement?

For employers, phased retirement supports succession planning by retaining key employees while replacements are trained or recruited, and supports employee well-being by allowing grater flexiblilty for workers preparing to retire.

 

Can all employees request phased retirement?

Employees approaching retirement age can request phased retirement, but it is subject to the employer’s approval and business needs.

 

What are common arrangements for phased retirement?

Common arrangements include reduced working hours, job sharing, part-time work, or flexible working schedules.

 

How does phased retirement affect pension benefits?

Phased retirement can impact pension benefits; employees should seek advice to understand how reduced hours and income might affect their pension entitlements.

 

Are there legal requirements for implementing phased retirement?

While there are no specific legal requirements for phased retirement, employers must comply with employment laws and ensure non-discriminatory practices.

 

How should employers handle phased retirement requests?

Employers should have a clear policy in place, consider each request individually, and discuss options with the employee to find a mutually beneficial arrangement.

 

Can phased retirement arrangements be temporary?

Yes, phased retirement arrangements can be temporary or reviewed periodically to adapt to the changing needs of both the employee and the employer.

 

What role does consultation play in phased retirement?

Consultation is crucial in phased retirement, as it allows for open dialogue between the employer and employee, ensuring that both parties’ needs and expectations are addressed.

 

How does phased retirement affect succession planning?

Phased retirement can be a strategic tool in succession planning, providing time to mentor and train successors while gradually transitioning responsibilities.