New age discrimination laws will soon make it illegal to set a retirement age for partners. David Furst explains how this will make performance management and business planning more critical than ever


Modern partnership and limited liability partnership (LLP) agreements invariably include very specific provisions concerning partners' retirement ages. Often an age somewhere between 55 and 65 is stated, in some cases with flexibility. Firms have been content in the knowledge that older partners will leave at the chosen retirement age, allowing room for younger, ambitious solicitors to move further up the ranks.



However, when new age discrimination legislation comes into force on 1 October this year, retirement planning for law firms will become rather more of a headache. Furthermore, the default retirement age of 65 for employees does not apply to partners or members of LLPs.



In recent years, many partners in larger law firms have been able to take advantage of early retirement. Most UK top-50 firms have achieved high profitability and their partners have a healthy pension pot.



But the position in smaller to medium-sized firms is often very different. Profits may have been low, with partners finding as they approach the end of their working life that their pension is not the pot of gold they had anticipated. A growing number therefore want to work longer in order to maintain their current lifestyle and to continue building an income for their retirement years.



Under the new age discrimination rules, firms will not be able to specify a retirement age for partners. Indeed, any firm that tries to remove a partner who claims it is on the basis of age could find itself facing a costly legal battle.



After 1 October, partners can legally keep their feet firmly under their desk into their 70s and beyond. It will be illegal to make them retire at 65 and illegal to pay them less because they are over a certain age. Inevitably, this will cause problems both internally and externally.



The first consequence to consider is the firm's client base. Those clients who have a long-standing relationship with an individual partner might accept a slowdown in their performance if a succession plan is in place for a younger partner to take over the work.

But how long will this continue? Are clients really going to accept dealing with a 70-year-old partner on a regular basis? Although everybody's work 'sell-by date' will vary, few people can claim to be as sharp in their 60s or 70s as in they were in their 40s or 50s, and this may well have an impact on the retention of clients.



The second consequence is succession planning. If partners choose to stay on beyond 65, they are likely to be causing an obstruction in the career path of younger, keen individuals in the firm. Hard-working associates faced with a top-heavy firm and a frustrated career path may well jump ship and seek partnership elsewhere.



This is likely to be most common in smaller firms, where there are only a few partnership roles. The loss of young talent can only ever have a negative impact on these firms.



So how can firms stay within the new rules, yet also put in place arrangements that are in the best interest of both the individual and the firm itself? The answer lies in partner performance management, greater emphasis on performance-related pay, and a structured retirement plan.



Most medium and large firms have in place some form of partner appraisal system. In many cases, it is relatively informal and will need to be reviewed, and possibly become more structured.



The appraisal process, if carried out well, should be positive for the firm and the individual partner. It should not only review the past and consider the achievements and weaknesses of the partner and his team since the previous appraisal but, more importantly, it should set objectives and targets for the coming period.



Some of these will be objective - billings, chargeable hours, new clients introduced, and so on. Others will be subjective - raising the firm's reputation, development of people in the firm, and management of a team.



Some firms have taken the view that, as a partner reaches retirement age, there is less need for such an appraisal. Quite the opposite is now true. The appraisal can be an opportunity to discuss retirement plans and their timing.



In cases where the partner has a rather later timeframe in mind than the firm, this will need to be frankly discussed. If the partner is no longer performing up to expectations, the firm cannot afford to duck the issue.



A pure lockstep system of remuneration will inevitably be confined to history. It is arguable that this in itself is age discrimination against younger partners by rewarding partners by reference to the number of years of partnership.



From a commercial perspective, many firms have, in recent years, increased the performance-related element of profit sharing. Whereas an 'eat what you kill' system can lead to partners acting in their own interests rather than in the firm's, an element of performance-related pay is a means of conveying to partners their comparative worth to the firm, particularly if it diminishes in later years of working life.



No doubt partners in most firms will be able to gauge the appropriate time to retire and will do so without fuss. Yet there will always be a small minority who do not and will try to hang on for personal or financial reasons longer than they are welcome. While no appraisal system will be foolproof against such partners, the better the appraisal scheme in place, the less likely it is that firms will be confronted by partners who do not wish to retire.



David Furst is chairman and head of the professional practices group at Horwath Clark Whitehill