When an employee retires

Employees can generally retire when they want to. As such, you can only operate a compulsory retirement age if you can objectively justify it.

This guide aims to give you an overview of what to do when an employee retires and gives details of where you can get more information and advice.

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Retirement ages and procedures

Employees can generally retire when they want to.

To help with your workforce planning, if you don’t already do so, you should consider setting up regular individual workplace discussions with all employees.

Then, when you are having such a discussion with an older employee, you may get the opportunity to raise the issue of their future plans, which may include plans to retire.

Retirement ages

You can only operate a compulsory retirement age if you can objectively justify it.

The first thing you would need to do is ask yourself why you need a compulsory retirement age. Set out your reasons clearly on paper.

You should then ask the following questions:

• Do you have real hard evidence which can justify your reasoning or is it just based on a preference or assumption?
• Are there easier, simpler ways of achieving the same results – ie by introducing regular staff reviews?

Employers who wish to objectively justify a compulsory retirement age need to consider the matter carefully. They would need to ensure that the retirement age meets a legitimate aim, such as:

• workforce planning (the need for business to recruit, retain and provide promotion opportunities and effectively manage succession)
• the health and safety of individual employees, their colleagues and the general public

As well as establishing a legitimate aim an employer would also need to demonstrate that the compulsory retirement age is a proportionate means of achieving that aim.

The test of objective justification is not an easy one to pass and it would be necessary to provide evidence if challenged at a tribunal; assertions alone would not be enough.

Find information on the removal of the Default Retirement Age on the Acas website- Opens in a new window.

Retirement dismissals

If you do operate a compulsory retirement age that you can objectively justify, you must follow a fair and reasonable dismissal procedure. This means:

• giving the employee plenty of notice of the date you intend to retire them 
• arranging a meeting to discuss their retirement
• considering any request they make to work beyond the compulsory retirement
• allowing them an appeal if they do not accept your decision

You can also still dismiss an employee of any age on, for example, the grounds of:

• capability, eg where they have been absent for a long time due to ill-health or – despite you giving them opportunities to improve – their performance is not up to standard
• redundancy, ie where there is no longer work for the employee to do

For further information on fair dismissal procedures, see our guide on dismissal.

Pay and pensions

Whatever date the employee retires, during the employee’s final few weeks of work, you will also need to:

• calculate their final payment – see our guide on pay – an overview of obligations
• calculate any entitlements due under employee share or share option schemes – particularly relevant regarding early retirement
• check the rules of their pension scheme – see the page in this guide on pensions and retirement

Emotional and practical issues

Even though an employee can generally choose when to retire, preparing for retirement may still be a difficult time emotionally for them.

Therefore, you should consider helping them in the run-up to their retirement – see the page in this guide on providing support for a retiring employee.

Remember that you may also need to retrieve company property, eg security pass, company car, laptop computer.

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Pensions and retirement

When employees retire, make sure they receive any occupational pension(s) that they are due.

If employees retire at state pension age, they will need to make a claim for the state pension or consider options to defer it.

Currently, the state pension age for men is 65. On 6 April 2010, the state pension age for women started to increase gradually from 60 to 65. The government has recently announced new proposals to increase the state pension age. The proposed changes affect employees born between 6 April 1953 and 5 April 1960. An employee will not be affected by these proposals if they are a woman born before 6 April 1953 or a man born before 6 December 1953.

Calculate an employee’s state pension age on the Directgov website- Opens in a new window.

It would be helpful to confirm that they have received a claim pack from The Pension Service, which will normally write to invite a claim around four months before a person reaches state pension age.

However, if your employee hasn’t received a claim pack or wants more information on the state pension, including how to defer it, they should contact The Pension Service. Find out who to contact at The Pension Service on the Directgov website- Opens in a new window.

If you run an occupational scheme and your employee is a member of it, write to the trustees or managers of the scheme to let them know the retirement date. The trustees or managers will then:

• work out what the employee will be entitled to on retirement
• write to the employee shortly before retirement with details of any tax-free lump sum that they may be entitled to
• provide details of the amount of pension payable and the date at which the first payment is to be made

If your scheme is a money purchase arrangement that is not run by a pension provider, eg an insurance company, the employee should be advised that they have the right to buy an annuity from a provider other than the one running the pension scheme. This is an alternative to receiving a pension from your scheme.

If any employee thinks they may have lost track of an old pension from a previous workplace, they may find it helpful to contact the Pension Tracing Service – help an employee trace an old pension on the Directgov website- Opens in a new window.

Your employees may also benefit from independent financial advice. Find information and guidance on pensions on the Pensions Advisory Service website- Opens in a new window.

You may therefore wish to consider providing this advice as an employee benefit. You can do this as a tax-free benefit as long as it is made available to all employees and costs less than £150 per employee per year.

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Providing support for a retiring employee

Even though employees can generally choose when to retire, preparing for retirement may still be a difficult time emotionally and financially for them.

There are a number of ways in which you can help an employee make the transition from employment to retirement, including:

• Allowing them to gradually reduce their working hours for a period of time before their retirement, preferably on full pay. This will give the retiring employee a chance to develop other interests outside work.
• Providing opportunities to attend a pre-retirement course for counselling and/or financial advice.
• Providing information on the state pension and other entitlements – see the page in this guide on pensions and retirement.
• Organising a retirement party for them and buying them a retirement gift.

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