In January 2014, the age from which an individual can collect the State Pension will increase from 65 to 66 and it is proposed that this will be increased again in 2021 and 2028 to age 67 and 68 respectively.  The potential impact of these changes is significant and may affect employers, employees and pension schemes.

For instance, many employees will want to continue working until they can start collecting the State Pension.  However, this may not be in line with their employer’s business plans.  Irish equality legislation currently permits the setting of mandatory retirement ages.  Therefore, where an employment contract provides for a retirement age predating the age from which the State Pension can be drawn, an employer is not required to retain the employee beyond the contractual retirement age. This does not sit well with developments in the EU context which provide that an employer must have an objective justification for setting a retirement age.  Employers who intend to retain a mandatory retirement age should consider whether they have an objective reason for doing so.  Otherwise, they run the risk of an employee challenge to the enforcement of such a retirement age. 

The increase in the State Pension age may also have a significant impact on defined benefit (DB) schemes which operate on an “integrated benefits” structure (i.e. where an individual’s pension is calculated on the basis that the State Pension is a proportion of their scheme pension).  Depending on the wording of the scheme documentation, the effect of the age increase may result in the scheme being obliged to pay an amount equivalent to the State Pension from when members attain the age of 65 until they can collect the State Pension or could even result in the State Pension being omitted from the pension calculation with the consequence of a higher scheme pension being payable for evermore.  Employers and trustees of pension schemes should promptly review and possibly amend their scheme documentation where necessary or appropriate.

Employers, employees and trustees need to plan for the upcoming changes to the State Pension age in order to avoid, insofar as possible, any unintended and undesirable consequences.

Contributed by Mary Greaney, Lorna Osborne, Catherine O’Flynn.

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