Forum of Private Business warns pensions and retirement rule changes will act as discincentive to recruitment

The body claims the Government’s decision to force companies into providing pensions for employees and to remove the Default Retirement Age (DRA) will deal a double blow to smaller employers.

The forum believes making businesses of all sizes provide pension provisions from 2012 – even if they only employ a single person – will add cost and create extra administrative burdens when small businesses can least afford it.

The move, which was confirmed by the pensions minister Steve Webb this week, is likely to lead to a drop in the number of permanent jobs being provided by small to medium-sized enterprises (SMEs) and an increase in the use of temporary staff and self-employed labour. 

Additionally, the forum is arguing the Government’s intention to remove an employers’ ability to retire workers as part of its abolition of the DRA will act as an extra disincentive for small employers to recruit.

In response to the recent consultation on the issue, the forum warned that the removal of important retirement options, which could be effective from as early as April 2011, could leave business owners open to accusations of age discrimination, lead to an increase in employment tribunal cases, and hamper small firms’ ability to plan for the future.

Forum spokesman Phil McCabe said: "The Government has stated repeatedly that it wants the private sector to pull the UK out of the economic doldrums by driving job creation.

 "Yet by abolishing the DRA and forcing even the smallest of businesses to provide pensions for their staff, it is creating a huge incentive for firms to avoid providing proper, permanent jobs due to the risks and costs involved.

"Instead, they will increasingly be forced to use temporary staff and self-employed labour in order to remain competitive. We appreciate that the Government needs to tackle the pensions shortfall and reduce the costs associated with an ageing population, but it is unfair and counter-productive that businesses struggling to emerge from one of the worst recessions in living memory should be expected to foot the bill."

The forum claims if schedule 6 of the Age Regulations – which gives an employer the option of retiring staff at 65 – is removed, workers will have the right to work on indefinitely. 

As a result, businesses will only be able to use the capability dismissal process to terminate the employment of a worker whose age is detrimentally affecting his or her performance. But many smaller business owners would be reluctant to do this, the forum believes, as the process would be seen as demeaning, could affect workplace morale and would not provide a dignified end to a career.

In addition, the capability dismissal process is very time-consuming and costly, which would disproportionately affect SMEs due to their more limited resources and finances.

Calling for schedule 6 to be retained, the forum also argued that its removal would lead to an increase in the number of employment cases being taken to tribunal as, without retirement as a reason for dismissal, the boundaries between legitimate reasons for dismissal and unfair dismissal would become blurred. Small to medium-sized enterprises which wanted to dismiss an older employee would also have to obtain a medical opinion, adding to the costs involved.

Finally, the forum argued businesses have not been given enough time to plan for the abolition of the DRA, which will affect business owners from April 2011, and called for it to be phased out more slowly.   

This article was first published on hrmagazine.co.uk