The Government has announced a Bill which, if enacted, will permit employees to stay in work until the State Pension age. Our Pensions team reviews this proposal and identifies some implications for employers and pensions providers.

In recent years, the Pensions Commission recommended that employees be permitted, but not compelled, to stay in employment until the State Pension age. That age is currently 66. The Employment (Restriction of Certain Mandatory Retirement Ages) Bill 2024 is designed to address this issue. As the General Scheme of the Bill has been published, we review this measure and identify issues for employers and pension providers to consider in anticipation of its introduction. Once enacted, it will apply to employment contract clauses which oblige an employee to retire before the State Pension age.

Consent to retirement

This new legislation, if passed, will introduce a requirement that an employee’s consent must be obtained for retirement before the State Pension age. If an employee does not consent, they must notify their employer in writing of that fact at least three months in advance of their contractual retirement date. If employees consent, or do not notify their employers of their non-consent, then they will be deemed to consent to retire at their contractual retirement age. Employers will be permitted to extend the notice requirement to a period of up to six months and employees will be permitted to withdraw their consent in accordance with the notice periods in their contract of employment.

The General Scheme of the Bill also proposes an interpretive rule concerning mandatory retirement ages in contracts of employment. If an employee does not agree to retire before they're eligible for the State Pension, then the retirement age stated in their work contract will be considered as either the State Pension age or any age they choose to retire before reaching that age.

Implications for employers and pension providers

The major implication of this change for employers would be the likely need to review their employment contracts for older employees. Employers should consider assessing what their standard retirement age is in their contracts of employment and perhaps aligning it with the State Pension age.

In addition, employers should consider introducing a procedure by which an employee’s consent or otherwise to retirement is recorded in writing. The Regulatory Impact Analysis accompanying the General Scheme of the Bill suggests that there will be no significant administrative costs associated with employers complying with the Bill. While this may be true, it's not entirely clear what other cost implications this may have for employers. Additionally, there are non-financial implications for employers, such as those relating to recruitment and promotion.

While the General Scheme of the Bill expressly states that it shall not affect any pension scheme, pension providers should nonetheless consider reviewing the normal retirement date provided for in their pension schemes and considering any potential impacts. Indeed, as the proper drafting of and debate about the Bill has not yet commenced, pension providers should monitor the development of this measure closely in the coming months. This is because, if enacted, it may initiate a change of retirement ages for many employees.

Conclusion

Given that the proposal is at such an early stage, ongoing engagement and consultation with all affected parties will be key. The Regulatory Impact Assessment associated with the General Scheme of the Bill suggests that “clear guidance” will be provided to employers and “appropriate lead in time will be given”. It is welcome that there is such clarity at this initial stage of the development of the proposal, but this also means that significant changes are possible before the measure is finally adopted.

For more information on the impact of the Bill on your organisation's operations, contact a member of our award-winning Pensions team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.

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