The planned increase in the State pension age to 67 from 1 January 2021 became a major political issue in the 2020 general election. As a result, the government enacted legislation in 2020 to suspend that planned increase in the State pension age.  It now remains at age 66. The government also established a Commission on Pensions (the Commission) to review current State pension arrangements and submit recommendations to government.

On 7 October 2021, the Commission delivered its report making several recommendations to address the fiscal sustainability of the State pension, as well as recommendations on the use of mandatory retirement ages in employment contracts. We have examined two of the core recommendations that will be most relevant for Irish employers and pension trustees.

1. Aligning Employment Contracts with the State Pension Age

The Commission has recommended that legislation be introduced to align any compulsory retirement age in employment contracts with the State pension age to ensure no gap between the time a person must stop working and when their State pension begins. As mentioned in our previous report, a small but growing number of employers have already aligned their compulsory retirement age with the State pension age to address this gap.  Alternatively, more and more employers are simply choosing not to include a mandatory retirement age in their employment contracts.  

However, for those employers who wish to include a compulsory retirement age in their employment contracts, the legislation recommended by the Commission would allow, but not compel, an employee to continue working until they reach the State pension age. Businesses would still need to prove that having a compulsory retirement age was objectively justified for a legitimate aim, even if aligned with the State pension age.  

The Commission recommended that, in the limited circumstances where a retirement age below the State pension age would continue to apply (e.g. as a result of legislation, collective agreement or at individual employment level), employers would be required to ensure that the employee is aware a retirement age below the State pension age applies. 

Employers would also be obliged to evidence compliance with the law in terms of objective justification by a legitimate aim and appropriate and necessary means.  The same terms and conditions on the insurance provision, financial services and related benefits should apply to all employees. These obligations would be subject to the availability of these benefits from providers and the cost not being disproportionate for employers.

This legislation would not affect employment contracts where the retirement age is set above the State pension age and would only apply to contracts with a mandatory retirement age. The legislation would apply to both existing and new employment contracts. Detail on this proposal was not given by the Commission but is likely to mean that either current employment contracts would be automatically superseded by the legislation, or employers would be required to amend the employment contract to comply with the legislation.  

2. Increasing State Pension Age 

Based on the data the Commission analysed, it concluded that increasing the State pension age would generate savings that, together with other PRSI related and Exchequer reforms, would improve the fiscal sustainability of the State pension. However, to lessen the impact of any pension age increase on upcoming pensioners and to enable them to receive adequate notice of any pension reforms, the Commission recommended that any pension age increase should: 

• only be made following the enactment of legislation to align retirement ages in employment contracts with the State pension age; and
• involve gradual, incremental, three-month increases, rather than full-year increases, commencing in 2028 and reaching 67 in 2031, with further three-month increases every two years, reaching 68 in 2039.

Comment 

Successive governments have commissioned and received reports recommending increases to the State pension age to address the State pensions system’s sustainability challenges. Therefore, the Commission’s recommendations are unlikely to have come as a great surprise to the current government.  

The Commission’s report has now been referred to the Cabinet Committee on Economic Recovery and Investment for consideration over the next six months to bring a recommended response and implementation plan to government by the end of March 2022. Therefore, we will have to wait almost six months before knowing if any of the Commission’s recommendations will be implemented.

In the meantime, the proposed increase in the State pension age to 67, which was anticipated in 2021, looks unlikely to happen until 2031 at the earliest. Employers and pension trustees who took steps to align retirement ages with previously anticipated increases in the State pension age will now need to consider if those arrangements need to be revisited, given that the anticipated increases could be almost a decade away. 

If you would like any advice on these issues, please get in touch with Ian Devlin, Jeffrey Greene or your usual William Fry contact.

Contributed by Rebecca Martin & Eimear O’Leary