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Impending change to the state pension age and the recent challenges to mandatory retirement

10/12/2013

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Ireland

McDowell Purcell hosted a seminar on the impending change to the state pension age and the recent challenges to mandatory retirement in the Merrion Hotel on 10th December 2013. In January 2014, the State Pension Age will increase from age 65 to age 66. While this does not mean that employers are obliged to increase retirement ages accordingly, the increases in State Pension Age will inevitably result in employees seeking to work beyond the age of 65 which, for many employers, has traditionally been the normal contractual retirement age, in order to avoid facing a potential gap in earnings between their contractual retirement age and receipt of State pension. The question arises as to what the employer should do when faced with such requests, or indeed, if an employee challenges an employer’s entitlement to retire him/her at age 65. In many cases, the employer may be amenable to allowing employees to remain on beyond their contractual normal retirement age. In such cases, they can, with the employee’s consent, postpone the employee’s normal retirement date or retire the employee from permanent employment on attaining the normal retirement age and thereafter, employ the employee on a fixed term basis. The obvious risk associated with permitting employees to work beyond normal retirement age is that it potentially dilutes the strength of the employer’s normal retirement age and creates a potential precedent for other employees who may wish to challenge their compulsory retirement. Another approach that could be considered by employers is to amend the normal retirement age so that is aligned with the State Pension Age From a pension’s perspective, aligning the normal retirement age under a pension scheme with the new state pension age may require a scheme amendment which may necessitate trustee consent. If a request to remain working beyond the normal retirement age is refused, an employee may challenge their compulsory retirement on the grounds that it constitutes discrimination on the grounds of age. Up until relatively recently the generally accepted position in respect of compulsory retirement was that, provided an employee’s contract of employment contained an express retirement age clause, the employer could require the employee to retire upon reaching the specified contractual retirement age. However, following recent challenges to compulsory retirement in Ireland and the EU, an employer is required to objectively justify retirement ages by reference to a legitimate aim. It is not enough to simply rely on a term in a contract of employment or the State Pension Age. Employers should, according to Barry Walsh of Mc Dowell Purcell, consider what legitimate objectives are relevant in their business to justify a particular retirement age. This might be the need to establish a balanced age structure, encouraging recruitment of young people or preventing disputes about the performance of older people. From some such decisions to date, it is clear that such aims may be social, demographic, budgetary or in the public interest. However, it is clear that cost alone will not be a legitimate factor. James McConville of McDowell Purcell gives the following advice: “Employers will need to think carefully about how they will address this issue and to consider the reasons why they have a particular retirement age in their organisation. The reasons should be set out in a retirement policy and employers should enforce mandatory retirement on a consistent basis. Otherwise, an employer may be exposed to a claims of discrimination which, both from a costs and PR point of view, are unwelcomeIt is expected that legislation may be introduced in the future to provide employers with more certainty in this complex area.   Contact: Barry Walsh - bwalsh@mcdowellpurcell.ie James McConville - jmcconville@mcdowellpurcell.ie