Under the National Pensions Framework, 2010, the age at which an individual is entitled to the State pension will gradually be increased to 68 by 2028. This increase creates uncertainty for both employers and employees in an area already lacking in clarity.
Uncertainty While some contracts of employment will specify the age at which an employee is to retire, many will not. Further still, some employees receive no written contract at all. Existing contracts may provide that an employee is to retire at 65, the age at which they are currently entitled to draw the State pension. The impending increases may however, create a situation whereby an employee will be contractually obliged to retire before they have reached the age of entitlement. In light of the financial implications arising out of such a scenario, the employee may naturally be keen to work beyond his/her contractual retirement age. While many employers may be amenable to such a solution, they may in some instances prefer to strictly enforce the contractual retirement age.
Discrimination At present, under The Employment Equality Acts 1998-2007, the act of fixing a compulsory retirement age does not qualify as discrimination on the grounds of age. The Irish position is at odds with the European Council Directive 2000/78/EC which requires that any differing treatment on the grounds of age be objectively justified. The Equality Tribunal has acknowledged that the Irish Courts have an obligation to interpret the Equality Acts in a manner harmonious with the Directive. In light of this, employers would be well advised to consider the grounds for imposing a compulsory retirement age and the objective justification for doing so.
In assessing whether or not the imposition of a compulsory retirement age constitutes discrimination, the courts will look to whether:
In essence, the courts will look at whether or not the employer’s objective is legitimate, and if so, whether or not its discriminatory effect goes beyond what is necessary for its achievement. Employers should consider then whether or not enforcing a compulsory retirement age is entirely necessary, and whether their goal in imposing the retirement age might be achievable through less drastic means.
Various cases have dealt with this issue in the recent past. In Palacios de la Villa v. Cortefel Services SA [2007] ECR I-8531 compulsory retirement under a Spanish collective agreement was held to meet a legitimate aim in seeking to promote employment opportunities and was objectively justified. In a recent Irish case, Donnellan v. Minister for Justice, Equality and Law Reform and Ors. (Unreported, High Court, McKechnie J. 25 July 2008) an Assistant Garda Commissioner challenged the imposition of a compulsory retirement age. The Court held however, that this measure was objectively justified on the basis that it was necessary to ensure ‘motivation and dynamism through the increased prospect of promotion’.
While the imposition of a compulsory retirement age does not currently qualify as age discrimination under Irish law, in light of the above mentioned European Council Directive and recent case law in the area, employers would be wise to ensure that any such imposition is objectively justified and necessary to achieve a legitimate aim.
The imminent increase in the age at which the State Pension can be drawn also causes great uncertainty in relation to pension schemes. On a basic level, an investment strategy selected upon the assumption that members would retire at a particular age may be rendered less appropriate by the fact that workers may be forced to work for longer.
More specifically, under certain defined benefit pension schemes operating on an ‘integrated benefits’ basis, calculation of the scheme pension involves a deduction of an amount equal to the State pension payable at 65. If no State pension is payable at 65, no such deduction arises, which could lead to increased and unforeseen financial implications for the scheme.
Likewise, ‘bridging pensions’ offer those who retire earlier a payment equal to that of the State pension until such time as they become entitled to it. Such schemes could now be required to ‘bridge the gap’ for longer, causing an increased strain on the scheme’s resources.
Employers, employees and pension trustees would be well advised to carefully consider the potential implications of an increase in the state pension age.
Many employees will wish to continue working until eligible to draw the State pension. This however, may not fit in with the business objectives of their employer. Any employer seeking to impose a compulsory retirement age should ensure that such an imposition is for the purposes of satisfying a legitimate aim, and can be objectively justified.
Finally, employers and trustees should review pension scheme documentation to assess any impact the increase in the State pension age may have.
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