How to handle retirement discussions: Top tips for HR

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, constructive dismissal and age discrimination claims.

Start with care – and avoid assumptions

The ACAS guidance is clear: don’t raise retirement unless the employee does first. This was highlighted in Tapping v Ministry of Defence, where HR 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 tip: Instead of asking older employees about retirement, ask all employees – of all ages – about their short-, medium- and long-term career plans in 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, it's fine to explore their plans. You might discuss:

• Current performance
• Training or support needs
• Career goals and timescales
• Organisational plans and role development
• Options like phased retirement or flexible working

Stay open and non-committal unless and until formal notice is given – people’s plans change, and assumptions can lead to risk.

Think before offering a retirement payment

Where retirement is raised, some employers consider offering an ex gratia payment as a gesture of goodwill. But be cautious: ex gratia payments are not always tax-free just because they’re linked to someone leaving. Any lump sum (including an ex gratia payment) 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’ (including sums paid on, after or in anticipation of retirement), received by an individual under an employer-financed retirement benefits scheme, count as employment income. 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.

HR Takeaways:

• Be careful if raising retirement unless the employee does.
• Use career conversations with all staff to keep planning inclusive.

For advice and support relating to the issues raised in this blog or to make an appointment with our Employment Law Team please call 01635 896 336 or email employment@fentonelliott.co.uk

Disclaimer: This summary is for general awareness and insight, not legal or professional advice and readers should seek professional advice for their situation.