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24 February 2016

Retirement planning and exit strategies for the over 50s

Employment partner Jo Davis has a well-established reputation in the field of age discrimination. As 2016 marks five years since the default retirement age of 65 was officially abolished, she looks at some of the issues to be considered.

Since the Supreme Court ruling in 2011, any employer trying to force an employee to retire could now find themselves facing a claim for age discrimination.

One of the subsequent effects has been that many businesses have simply abandoned retirement ages completely. That has created its own conundrum as older workers start to feel the strain and younger colleagues struggle to climb the promotion ladder because vacancies created by natural succession fail to appear.

One solution is for a business to consider reinstating a compulsory retirement age. In order to do so they need to be able to justify the decision by showing that a social policy aim is in place, and this falls into two categories - “intergenerational fairness” and preserving the “dignity” of an older employee. Cost alone is not enough.

Intergenerational fairness is, as the name suggests, ensuring fairness between the generations. Therefore an organisation which can show it needs to set a retirement age in order to retain ambitious younger employees who may otherwise leave to achieve promotion, will be able to defend an age discrimination claim.

This doesn’t however, allow the retirement of older staff with impunity, tribunals will look at claims carefully and only find the retirement age is justified if it is proportionate - ie: appropriate and necessary. And it will take into account the discriminatory effect on the older employees against the needs of the business to make room for younger workers to progress.

When it comes to preservation of dignity, the Supreme Court has recognised that setting a retirement age can help to preserve an employee’s dignity and avoid awkward discussions about their ongoing ability to carry out their job.

It can be worth objectively evaluating if older employees (or partners) are taking longer than necessary to carry out certain activities or are not performing them as efficiently as they should - you can then set an agreed retirement age to help the business move forward.

Of course, retirement for employees is one issue - but what about retirement if it’s your business?

Planning your own exit strategy - especially if you are over 50 and plan to leave the business at 60 or 65 - is important to consider in plenty of time.

There are various options, but if the preferred route is retirement with a well-managed succession, then certain questions should be addressed so that any risks and fears can be, where appropriate, alleviated. They include:

  • if there will still be a role for the owner in the future
  • how the departure will affect employees, suppliers and customers,
  • how a senior management change will impact on the structure of the business and,
  • if the business will alter its name or location.

Selecting the right successor can be challenging, especially if there is no one obvious candidate. Coaching and developing the senior team can help to identify potential individuals but you must be open with people and talk about their aims and ambitions, as it may be that the preferred candidate has no intention of taking over.

Ongoing training will help ensure that the owner’s departure doesn’t have a negative effect on the company, while incorporating financial incentives, such as employee share schemes, will help retain employees whose contribution is essential to the success of the business in the longer term.

It’s also important to recognise that fate can intervene unexpectedly and, as a business owner, you have responsibilities to your colleagues and customers.

That’s why you should put in place a power of attorney and make a will identifying what should happen to the business and your shares in the event that you die suddenly or become incapacitated. Planning ahead really does make sense.

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