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Retirement decision put in the hands of the people

Retirement decision put in the hands of the people

Category: Pensions

Updated: 13/01/2011
First Published: 13/01/2011

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The Government has confirmed that it will be scrapping the default retirement age (DRA) from April 2011.

Currently the DRA enables employers to force staff to retire at 65 regardless of their circumstances.

However, with life expectancy rising and many people's pension plans not what they should be, ministers have decided to allow workers more choice over when to stop working.

Wasting little time in putting its plan into action, the Government has revealed the DRA will be phased out between 6 April and 1 October 2011.

"Retirement should be a matter of choice rather than compulsion - people deserve the freedom to work for as long as they want and are able to do so," said Employment Relations Minister Edward Davey.

"Older workers can play an incredibly important role in the workplace and it is high time we ended this outdated form of age discrimination."

The change means that from 6 April 2011, employers will not be able to issue any notifications for compulsory retirement using the DRA procedure.

Between 6 April and 1 October, only people who were notified before 6 April, and whose retirement date is before 1 October, can be compulsorily retired using the DRA.

After 1 October, employers will not be able to use the DRA to compulsorily retire employees.

Tom McPhail, head of pensions research at Hargreaves Lansdown, said although the move will probably be unpopular with employers, its impact on retirement planning may well be profound because it will change both employees' and employers' relationships with their retirement plans.

"For employees it means that there is no fixed end date to which they should set their retirement expectations," he explained.

"The date on which they retire will be up to them and will not be dictated by someone else.

"Their retirement will depend on a combination of when they want to retire and when they can afford to retire.

"Symbolically this is an important shift. It means their retirement is their responsibility, for better or worse, and hopefully it will encourage them to plan ahead accordingly."

The measure is one of the steps the Government is taking to help encourage people to work for longer and combat the much talked about pension crisis.

Other steps include raising the state pension age to 66 faster than currently scheduled and re-establishing the link between earnings and the basic state pension.

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