Retirement – Dealing with the retirement age challenge

In many countries, there is increasing pressure on employers to put in place more flexible retirement policies. This has been mainly triggered by developments in social policy, increases in state pension age (with the resulting income gap) and the potential shortfalls in occupational pension provision. These factors are leading to a greater number of requests from employees to continue working beyond their contractual retirement age and employers having to respond to these challenges.

It is important that employers review their retirement age policy to ensure that they are well positioned to deal with any challenges from employees and changes in legislation. Any retirement age policy should ideally fit in with:

  • The new statutory framework and age-discrimination legislation
  • The needs of the employer’s business in the areas of career progression, succession planning and productivity
  • Retirement income adequacy for retiring employees taking account of Company and State pensions

Employers often think that employees will have to retire when they reach the defined Normal Retirement Age under their occupational pension scheme. However this is not the case. The majority of pension schemes provide flexibility for benefits to be taken before or after Normal Retirement Age and it is essential to look more broadly at what has been communicated about retirement age within employment contracts and within employment policies that have been implemented in the past.

The new statutory framework introduced in 2016 and case law emanating from Irish courts and tribunals has made it clear that the setting of a compulsory retirement age must be objectively justified by the existence of a legitimate aim and evidence that the means of achieving that aim is appropriate and necessary. One of the consequences of the new law is that if fixed term contracts are offered post retirement, the employer will have to demonstrate evidence of objective justification for the termination of employment at the point of expiry of the fixed term contract.
Where changes are made, particular care needs to be exercised when amending the terms of pension and risk benefit plans including:

  • Reviewing the funding and cost implications of altering retirement age in defined benefit plans
  • Trying to introduce retirement flexibility while still operating within the Revenue Commissioner’s restrictive rules in terms of pension access.
  • Considering how to deal with the potential gap between the company’s retirement age and the new State pension age (which is gradually phasing to age 68).
  • Amending the terms of death and disability plans with insurers to reflect new retirement policies.

Employers should be cautious in how they approach the retirement age issue

There are many pitfalls for employers in trying to deal with retirement age and it can be a very sensitive issue for employees.

Employers need to:

  • Engage with employees as they reach the retirement window and ensure that contracts of employment specify a retirement age
  • Have an “objective justification” for any defined specific retirement age. Reasons which have been accepted by the courts in the past include succession planning, and the promotion of intergenerational fairness
  • Reserve the right to vary and review the retirement age as the needs of the business evolve and develop
  • Be careful in setting precedents where employees are allowed to work beyond a set retirement age (even if it involves offering a fixed term contract). Such practices can make it more difficult for employers to enforce their set retirement age in other cases.

Article provided by Willis Towers Watson