Can your employer force you to retire? Plus, other Qs, answered

Can your employer force you to retire? Plus, other Qs, answered

Last updated on 5th March, 2021 at 02:00 pm

When retirement comes knocking, many of us aren’t financially ready for it. Many people remain productive beyond the traditional retirement age. Experts answer questions about your rights to continue working past the traditional retirement age.

Retirement question #1: Can my employer force me to retire?

This will depend on whether your contract includes an official retirement age. Rudolf Kuhn, a labour lawyer, explains: “An employer can force an employee to retire, but only if the contract of employment provides for a retirement age and the employee refuses to retire.”

If your contract doesn’t specify a retirement age, you and your employer need to discuss and reach an agreement about your retirement age or date. Then get it in writing. “It is advisable for the [employee and employer] to conclude an agreement in which it is recorded that the employee’s employment is or will be terminated as a result of retirement.” Not only does this prevent misunderstanding or conflict between you and your employer, but it will also allow you as an employee to claim benefits from the Unemployment Insurance Fund (UIF), which not many are aware of, says Kuhn.

He also notes that you can’t be ‘forced’ to retire, and you could be in a position to pursue legal action if there is evidence of an unfair dismissal. “If your employer insists on retiring you against your will and such ‘forced retirement’ constitutes unfair discrimination, you will be able to refer an automatically unfair dismissal dispute to the Commission for Conciliation, Mediation and Arbitration (CCMA). If the dispute is not resolved at conciliation, you will then have to refer the case to the Labour Court. You should insist that your employer gives you a letter of termination or dismissal, before approaching the CCMA.”

Why would your dismissal be unfair?
“Section 187(1)(f) of the Labour Relations Act states that a dismissal is automatically unfair if it is based on age where the employer unfairly discriminates against the employee by dismissing them on grounds of their age,” says Kuhn. While this may protect you, your employer could be allowed to dismiss you based on age for two reasons, according to Section 187(2):
1. If the reason for dismissal is based on an inherent requirement of the job, or
2. If you have reached the normal or agreed retirement age for people employed in that capacity.

Retirement question #2: What does our law say about retirement age?

South African law doesn’t have a specifically legislated retirement age. However, your employer could argue that you have reached ‘normal retirement age’ as set out in your retirement fund terms. “In SA Metal & Machinery Co (Pty) Ltd v Gamaroff, for instance, the Labour Appeal Court found that the employer had not discriminated against the employee where the rules of the employer’s mandatory retirement fund provided that the retirement age was 65 years, even though the employee’s employment contract did not provide for a retirement age,” Kuhn shares.

This retirement calculator can help you find out how much you should be saving each month to enjoy your golden years.

Retirement question #3: Is it discrimination if I’m dismissed based on my age?

Yes, but unfair discrimination needs to be proved. Kuhn explains that discrimination will not be proved if the dismissal is based on:
• an inherent requirement of the job,
• an agreed retirement age, or
• where the retirement age is the normal retirement age in the workplace, for example, based on the rules of your employer’s mandatory retirement fund.

Retirement question #4: How do I know whether I can continue to work?

Your first point of reference is your employment contract. Check it to see if there is a retirement clause that specifies a retirement age. “If there is no such clause then you should look to the practice of the company i.e. if it is a well-established practice that all employees who reach 60 are retired, then you could ask to stay on to work,” suggests Kuhn. Ask your HR manager for a copy of the company policies, including its retirement fund – you could find a specified retirement age in it. “Whether or not there is a retirement clause or policy in place, it is advisable to speak to your employer far in advance to explore the possibility of staying on past your retirement age,” says Kuhn.

Considering working beyond the traditional retirement age? Ensure you are financially prepared by reviewing your financial plan with a qualified financial planner. Book a meeting here.

Retirement question #5: I’d like to continue working. What steps can I take?

Start by discussing the prospect of staying on as an employee and postponing your date of retirement with your manager. “Otherwise, you may ask to be appointed on a fixed-term contract, after you retire,” says Kuhn. Usually, where the employer accedes to this request, such a fixed-term contract will not contain the same benefits as those associated with permanent employment, he notes. These include pension fund contributions, medical aid, bonuses etc.

Undecided about which retirement savings structure is best suited to your needs? Read this guide.

Retirement question #6: Will I still get my pension benefits if I continue to work?

This depends on the pension fund rules, says Kuhn. “If the rules allow, it would be possible for you to remain in employment even after receiving your pension pay-out,” he explains. But this isn’t the norm. “Usually the employment will terminate, the pension benefits will be paid out and you may stay on as a temporary employee or be employed on a fixed-term contract.”

This is becoming more common, as retirees’ retirement savings often don’t match their income needs. “There are more and more cases that we encounter as financial planners where members are offered contract positions after their normal retirement date,” says Jaco van Schalkwyk, Certified Financial Planner® and Senior Financial Planner at Plan-B BlueStar. “There are some [retirement] funds that have amended their rules to cater for staff members who work beyond age 65. This could be very beneficial, as they may be able to retain benefits like group life cover beyond age 65,” he adds.

Explaining your options for managing your savings, van Schalkwyk says you could preserve your retirement savings after the age of 65 either in the fund, or in a preservation fund or retirement annuity (RA). “This is beneficial, as your money is allowed to grow further while you still earn an income. This will improve the level of income with which you, the member, will be able to retire,” he says

Facing retirement on a budget? Read this for top tips to make it work for you.

Retirement question #7: What about tax? Do I still need to pay it?

Yes, you will still be taxed on your income if you continue to work after 65. The good news, though, is that you will be taxed at a lower rate.

For the 2021 year of assessment:

A case example:

While the prospect of continuing to earn an income while enjoying your pension benefit pay-out sounds nice, van Schalkwyk cautions this may not be beneficial for you tax-wise. “Both the income from employment and pension will be added together for tax purposes, and could put you in a higher tax bracket,” he explains. “The current tax rates start at 18% and go up to a maximum of 45%.” To understand the tax implications applicable to you, speak to a registered tax practitioner.

As a Reality Health, Plus, Core or Club member, you have free access to TaxTim, an online tax tool valued at R599 that will do your tax return for you!

Have more questions about your employment rights? Use your free Legal Assist benefit. The unlimited 24/7 telephonic advice line is manned by qualified in-house attorneys.

Want to learn more?

We send out regular emails packed with useful advice, ideas and tips on everything from saving and investing to budgeting and tax. If you're a Sanlam Reality member and not receiving these emails, update your contact details now.

Update Now