The Social Welfare and Pensions Act 2011 provided for increases to the age at which the State Pension is payable. The standard State pension age is to increase to 66 with effect from 1 January 2014. The Act also provides for an increase in the age for qualification for the State pension from 66 to 67 years from 2021 and a further increase to 68 years from 2028.
While there is no statutory retirement age in Ireland, many employment contracts specify a retirement date of the employee’s 65th birthday. This age is frequently chosen to coincide with the date at which employees become entitled to the State pension. It is anticipated that an increased number of employees will now wish to work past the age of 65 as they may not be financially able to retire at that age without the State pension.
The majority of occupational pension schemes also have a normal retirement age of 65 years. Scheme documentation should therefore be reviewed now by trustees and employers to establish whether any amendments are needed to take account of the change in State pension age. Employers should also consider whether pension scheme members will be permitted to contribute to and/or accrue additional benefits under their scheme post normal retirement age (within Revenue limits).
Defined benefit pension schemes that operate on an integrated basis require particular consideration in respect of the increases in the State pension age. An integrated scheme considers the State pension to be part of the total pension package promised to employees on retirement. Where a scheme has a retirement age of 65, an increase in the State pension age will result in a gap arising between the age at which pensions are paid from the scheme and the age at which the State pension becomes payable. Employers and trustees have a decision to make as to what, if anything, they should do to deal with this gap. Due to the current funding position of many defined benefit pension schemes in Ireland, it is likely that for most members the amount received by them will not be increased to cover the gap caused by the delay in their receipt of the State pension.
It is important for employers and trustees to note that the integration provisions of some pension schemes reference the State pension payable from or at age 65. In this scenario, when there is no longer a State pension payable from age 65 the scheme may become liable to pay the amount that would otherwise have been paid by the State. This would have the potential not only to create funding difficulties in the short term, but because of current legislation protecting pensions in payment, might also create difficulties with reducing the pension being paid from the scheme once the State pension actually becomes payable to the member.
A similar issue for employers and trustees to be aware of relates to “bridging” pensions. On early retirement, some integrated schemes pay a higher pension to members until they reach the age at which social welfare pension benefits begin. The temporary “bridging” pension then ceases, to be replaced by the State pension. Increases to the State pension age may result in such schemes having to pay the bridging amount for longer than originally anticipated. Again, scheme provisions should be checked to see what effect, if any, the increases will have and whether any amendments are required.