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.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
