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Planning for the near future

  • Ireland
  • General

17-10-2013

This Summer, the Organisation for Economic Co-operation and Development (the “OECD”) just published its review of the Irish pension system. In summary, the report recommends that Ireland should make “its pension system simpler and fairer so that everyone gets sufficient income for a decent standard of living on retirement”.

This report comes after the Government increased the qualifying age for State pension from 65 to 66 from 1 January 2014. This will increase to age 67 in 2021 and then to age 68 in 2028.

For many employers in Ireland, the normal contractual retirement age for their employees is 65. The UK and Ireland are now aligned as Ireland does not have a statutory retirement age and the UK government has phased out its default retirement age so that people can now work as long as they want to.

With the increase in the State pension age in Ireland, many employees will now face a gap between the age at which they are expected to retire from work and the age at which they will receive a State pension.

All employers must now ask if their normal retirement age is appropriate and examine why an employee who has been doing the same job up to 65 cannot continue to do that jobbeyond that age.

In light of this ‘gap’ issue, employers can either: choose to ignore the increase in the age for State pension and keep the status quo (which raises issues from an employment and equality law perspective); or take steps to amend their contractual retirement age to bring it in line with the increased State pension age (which raises issues from both an insurance and pensions perspective).

The UK approach

According to a survey conducted by our colleagues in Eversheds UK, only 4% of employers reported an increase in equality claims (specifically age discrimination) since the abolition of the statutory retirement age. However, the survey also says that less than 3% of employers now have compulsory retirement provisions in their employment contracts.

This suggests that the overwhelming approach taken by employers in the UK is to absolve themselves of any potential liability for age discrimination claims by not enforcing a contractual retirement age at all. In this way, they do not have to demonstrate that their contractual retirement age is objectively justified to achieve a legitimate business aim.

The consensus among employers in the UK appears to have been based on a fear of no longer having a specific legal provision to rely on when enforcing compulsory retirement. As a result, many employers reported that the change in the law had negative effects for their organisation:

  • Difficulties in succession planning (reported by nearly two-thirds of those who took part in the survey).
  • Opportunities being blocked for younger workers (reported by just under half).
  • Increased costs of redundancies and/or providing benefits (reported by 37%).
  • More management time having to be spent on performance management (reported by 29%).
  • An increase in ill-health absence (reported by just over a fifth).

This is clearly not a desirable option for employers in Ireland who are now faced with the somewhat similar
situation imposed by the increase in State pension age.

Next steps

As the Unfair Dismissals Acts in Ireland do not apply where an employee reaches the contractual (or normal) retirement age in the workplace, many employers will be hesitant to abolish compulsory retirement ages entirely.

If employers choose to align themselves with the qualifying age for State pension, they may want to consider taking some of the following steps:

  • Review the current workforce to ascertain who will be affected after 1 January 2014. This way an employer will know how many employees are likely to be impacted and can now plan how it will best communicate this change to these employees.
  • Any pension scheme and insurance policy (for example, permanent health insurance, medical and car insurance) in operation would have to be carefully reviewed to consider the additional costs that would be incurred. Employers will also have to assess whether the change requires the agreement of other third parties, such as the pension trustees for an occupational pension scheme.
  • Introduce a retirement policy which clearly sets out the contractual retirement age for all employees. However, where an employer enforces this, the most likely legal challenge is an equality claim on the grounds of age discrimination. When drawing up a retirement policy, employers need to be able to demonstrate that their contractual retirement age is objectively justified to achieve a legitimate business aim. Justifications which have been accepted by the courts include ensuring a high quality of service, ensuring the health and safety of other employees, creating opportunities in the labour market and promoting access of young persons
    to professions.
  • In addition, a retirement policy could also contain potential options for employees to stay in employment past the employer’s contractual retirement age. For example and subject to employment and tax law considerations, employers may want to enter into a fixed term contract or a consultancy arrangement with older workers as in practice older workers generally have less desire to continue on a full-time basis but with this type of arrangement employers can continue to
    benefit from their experience and knowledge.

 

Disclaimer

This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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