UK Plans to Raise Default Retirement Age to 65

December 14, 2004 ( - The United Kingdom, which could be facing a massive pension deficit in the future, will force some employers to boost the employee default retirement age in 2006.

The government also plans to replace benefits based on the final year’s salary with the use of the average salary over a worker’s career, according to Bloomberg.   The UK will set a default retirement age of 65 and give workers the right to request to stay on the job after that age, and employers will be forced to provide justification if they are to have a lower mandatory-retirement age.

These changes follow a similar directive from the European Union, which has required that all countries legislate against age discrimination in the workplace. However, the default age of 65 is a retreat from a proposed age of 70 that was contained in an October government report. Employers in the UK can currently mandate a retirement age they like. The average retirement age on the British Isles is currently 63, Bloomberg states.

According to a report from Cabinet Minister Ruth Kelly, the government will delay the retirement of up to 550,000 employees to the age of 65, while changing the benefit scheme to an average salary instead of end-salary system.

Draft regulations will be introduced in 2005, with implementation occurring in October 2006, Bloomberg reports. The government will then review the rules after a five-year period.

There was mixed reaction to the announcement of the move, with the Confederation of British Industry, the nation’s largest business lobbying group, calling the decision “sensible and pragmatic”, according to Bloomberg. A trade group that represents more than 7 million workers, the Trades Union Congress, was skeptical, saying that it was worried that employers could easily deny worker requests to stay on after the age of 65.

The government plan also called for an increase of funding into the nation’s pension funds. It called on them to aim for combined contribution levels of 10% to 15% per year, with employers providing two-thirds of the funds. It also states that the financial services industry should join with the government to review the annuities market and should also aim to provide better service for small businesses, according to Bloomberg (See  Report: UK Employers Need to Contribute More to Workers’ Pension Plans ).