When an employee retires

Retirement - the process to follow

It may be helpful to follow a fixed process when employees retire, including the following:

• Check that the employee actually wants to retire. They may wish to consider options to continue working after normal retirement age. From April 2006, tax rule changes mean an employee will be able to draw part of their occupational pension and continue working for the same employer.
• Confirm the retirement date in writing as retirement age is approached.
• Plan for the gap they'll leave behind. Appoint a caretaker or recruit a new employee.
• Calculate how much they're due from outstanding holiday pay, bonus payments etc - 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.
• Calculate what should be deducted from their final payment, eg income tax and National Insurance contributions (NICs).
• Some occupational pension schemes provide enhanced pensions or extra benefits for employees who retire early, eg due to ill health.
• Conduct an exit interview to ensure you've covered everything - see our guide on when an employee resigns.
• Retrieve company property, eg security pass, company car, laptop computer.
• Arrange a gift and/or social event at work to celebrate the employee's contribution to your business.

The tax and NICs position on some payments can be complex - it's advisable to consult an accountant. Read a guide for employers about payroll and returns on the HM Revenue & Customs website.

Legal issues

Ideally, the date of retirement should be clearly indicated in the employment contract.

If it's not, you should not enforce retirement just because someone reaches a certain age. However, employees aged over the normal retirment age of their occupational pension scheme or over 65 cannot claim redundancy and have reduced rights to unfair dismissal. This is likely to change when age discrimination legislation is introduced in October 2006. Download a summary of the draft Employment Equality (Age) Regulations 2006 from the DTI website (PDF).

It is illegal to insist that a woman retires at a different age from a man.

Where businesses set a contractual retirement age but usually allow employees to remain in employment after that date, insisting on retirement once it is reached may constitute a breach of contract and/or unfair dismissal.

Subjects covered in this guide

• Introduction
• Retirement - the process to follow
• Pensions and retirement
• Providing support for a retiring employee
• Ill-health related retirement
• Early retirement

 

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