Ireland: Working and retiring in Ireland
The retirement age will increase to 66 from 2014. Fiona Thornton puts these changes in context and argues that rules should be changed to allow phased benefit drawdown
Following the publication of a Green Paper on Pensions in 2007, there was a lengthy consultation period in Ireland about the future of private and public-sector pensions. In 2010, the national pensions framework document was issued. This represented the government’s intention for radical and wide-scale reform of the Irish pension system.
One of the framework’s recommendations was that state pension age should increase to 66 from 2014, moving to 67 in 2021, and then to 68 in 2028.
Legislation introducing these changes was enacted in 2011. While other OECD countries are introducing similar changes, few of them are doing it as quickly.
Currently, the state pension, payable at age 65 to a fully qualified single person, is €230 per week. From 1 January 2014, the state pension will be payable from the age of 66.
There has been little debate in Ireland about how raising the age limit will affect employees, employers and pension schemes.
In December 2012, the department of social protection held its working and retirement forum, to which interested parties were invited to attend.
The purpose of the forum was to gather together those with interest and involvement in the extensive and diverse range of working and retirement issues so that the relevant government departments could identify all the issues and then take appropriate action to address the identified issues.
Ireland has raised the state pension age in response to the major challenges of demographics (in spite of having the highest birth rate among the 27 European Union countries), pensions adequacy and sustainability, and in the background of deteriorating public finances with a changing labour market and active ageing.
Government officials have estimated that the increase in the state pension age to 66 will initially only affect about 3,000 people a year. But for the 3,000 affected, depending upon their economic circumstances, the consequences could be quite harsh.
From a social policy perspective, the most disadvantaged people may be in crisis although other social benefits may be available from the state on a means-tested basis. It appears that Ireland is facing significant challenges in order to implement the change in state pension easily and without objection from the various stakeholders.
Ireland does not have a default retirement age, and employers usually set an age at which the employee is expected to retire.
From the perspective of employment law and equality, when the state pension age changes, there will be an increasing number of employees who may have previously expected to retire at 65 on the basis of then receiving state pension.
From 2014, some 65-year-olds may be concerned that they could experience a gap between the date they retire and the date they can draw their pension.
It is expected there will be a certain push-pull between employers and employees. Some employers may not wish to continue to employ the individuals involved. Others may be happy to do so. Equally, some employees may be keen to stop working at 65 while others may want to continue in employment.
Under current law, the attainment of normal retiring age from an employment is a defence to any claim for unfair dismissal. Also, domestic equality legislation is relied upon to enable employers to set retirement ages without giving rise to any right by the employee to claim against the employer for terminating the employment when the employee reaches the set retirement age.
The courts and employment tribunals, however, take a different approach and follow Europe on age discrimination, which requires employers to objectively justify the termination of employment for older workers. Legislation is urgently needed to remove these anomalies and to give guidance as to what constitutes objective justification.
It appears that employers and employees will have to be creative on how they respectively manage the challenges that longevity and longer working careers will bring. Step-down roles, consultancy, fixed-term contracts to enable the employee to be kept in the workplace, could provide appropriate solutions in certain circumstances.
These changes would suit a workforce with a private-sector pension scheme that enables partial drawdown of pension income and/or lump sum benefits. The older worker would be able to work reduced hours, earn less and be also able to access part of their pension benefits.
At present, revenue rules for private-sector pension arrangements do not generally allow partial drawdown of pension benefits. This is another area that needs to be altered to address future working and retiring patterns. In future, retirement will no longer be on a cliff-edge basis but rather on a gradual slope.
The change in state pension age may also produce some unforeseen, expensive consequences for certain private-sector pension schemes providing defined benefits which are integrated with the state pension, and also those schemes which provide bridging pensions.
In some circumstances, arising from the way in which the benefit structure could be drafted, a private-sector scheme might have to increase its payments by an amount equal to the state pension when the member reaches scheme retirement age of 65. This anomaly arises due to a technical point in the Pensions Act 1990. It is hoped that overriding legislation will be introduced in 2013 to eliminate such discrepancies and the potential significant cost which could be imposed on affected pension schemes.
Probably the most important issue to address is one of communication. All those affected need to be planning for 1 January 2014. In our experience, few are interested in doing so and there may well be a last-minute scramble.
A clear message was delivered by those attending the working and retirement forum to the relevant government departments. Employers, individuals and pension schemes each need to understand how these changes will respectively impact them to have some certainty about appropriate solutions. It is now up to the government to enact sensible helpful legislation that will overcome identified issues and create the framework to deliver the certainty of outcomes that all require.
Ireland was the first country to ban smoking in the workplace in 2004. This social change was introduced swiftly with little public opposition or advance debate, and was an overnight success. There has been little in the way of public outcry to date about raising the state pension age in Ireland.
It remains to be seen how Ireland will embrace this latest social change.
Fiona Thornton is a partner at LK Shields Solicitors, Ireland, a member firm of the Ius Laboris human resources law firm alliance