Talking about retirement with employees can feel like a legal and practical minefield – and with good reason. Handled poorly, these discussions can lead to broken trust, claims for constructive dismissal and/or age discrimination.
Avoid assumptions
The Acas guidance is clear, don’t raise retirement unless the employee does first.
The wisdom of this advice was highlighted in Tapping v Ministry of Defence. A misguided HR employee asked a civil servant in his 60s about his retirement plans after he raised a grievance about how his health condition was being managed. The tribunal found that this amounted to unjustifiable direct age discrimination, as a younger employee wouldn’t have been asked the same question.
Top tips for HR and employers
Don’t just ask employees of a certain age about retirement, ask all employees – of all ages – about their short-, medium- and long-term career plans during regular check-ins or appraisals. This avoids singling anyone out and keeps conversations inclusive and legally safe.
What to cover if retirement is raised
If the employee raises the topic, feel free to discuss their plans. You might explore topics like:
- Current performance
- Training or support needs
- Career goals and timescales
- Organisational plans and role development
- Phased retirement or flexible working
Stay open and non-committal until formal notice is given – people’s plans change, and assumptions can open you up to risk.
Think before you offer a retirement payment
When the subject of retirement is raised, some employers are keen to offer an ex gratia payment as a gesture of goodwill. But be aware that ex gratia payments are not always tax-free just because they’re linked to someone leaving.
Any lump sum paid to an individual who retires or is nearing retirement on termination is potentially taxable under s393 and 394 ITEPA and, therefore, would not benefit from the £30,000 exemption.
Under these sections, any ‘relevant benefits’ count as employment income. This includes sums paid on, after or in anticipation of retirement, as well as money received by an individual under an employer-financed retirement benefits scheme..
NOTE: The word ‘scheme’ has a wide meaning. In Forsyth v HMRC, the First-tier Tax Tribunal confirmed that a compromise agreement (as settlement agreements were then known) could be a ‘scheme’.
If you’re considering a payment on exit, take tax advice and, remember, there’s no legal requirement to make a retirement payment at all.
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