The government has announced that the default retirement age will be phased out by October 2011. The default retirement age permitted employers to retire workers at the age without justification, and is an exception to United Kingdom labor law, which prohibits employers from making employment decisions on the basis of age and forces them to provide justification for dismissing a worker. Personnel groups and those supportive of the elderly cheered the announcement, while business groups such as the Confederation of British Industry expressed concern about the law. There is merit in both reactions.
The decision to scrap the default retirement age reflects the growing need for Britons to continue working later, given that people are living longer and healthier lives. The average British male aged 65 today can expect to live past the age of 82, and the average 65 year-old female is expected to live even longer, until the age of 85. This is a full five years longer than elderly Britons lived in the 1970s. The retirement age, however, has failed to increase in commensurate fashion, and these lengthy retirements require substantial taxpayer support. In light of this problem, the spirit behind the decision to scrap the retirement age is encouraging, and the benefit it is hoped to bring to the strained public budget is welcome.
Yet there exists another side to the coin as well. The default retirement age allows for a certain degree of flexibility in that it permits employers and employees a chance to reevaluate the employment contract, and to terminate it if it is not beneficial to one party. The law does not force workers to retire, and is merely a mechanism that alleviates the burden of labor market regulations. When the changes go into effect, employers will be more constrained, and will be forced to undergo a costly firing process to eliminate redundant or underperforming elderly workers. The semblance of at-will employment that is permitted to exist under the current law will disappear.
Sixty-five is certainly an inappropriate retirement age for many Britons, but the law as it exists now encourages this. Yet instead of further regulating the market, the government could relax the regulatory requirements of firing a worker, whether they be elderly or young, which would, in turn, lessen the risk of hiring a new worker. The decision of when to retire could be made entirely by the individual, without any government interference that encourages sixty-five as the appropriate age. As we have discussed before, we could divorce retirement from the collection of state benefits altogether. In any case, the government’s changes are a welcome start to a much-needed national discussion of how to cope with Britain’s ongoing demographic shift.