Managing Retirement as the State Pension Age increases – what you need to know
24 March 2020
The Irish Government is to increase the age retired workers can claim the State pension. The current eligible age to claim the pension is 66. This will increase to 67 years of age in 2021 and to 68 years of age in 2028.
Given the use of mandatory retirement ages by employers in the private sector, usually set at the age of 65, there is a gap between the time employees are retiring and their ability to access the State pension. This is causing widespread concern.
In theory, given that there is no statutory retirement age in the private sector, employers are free to determine a mandatory retirement age for their employees. However, there has been a rise in age discrimination cases brought before the Workplace Relations Commission (“WRC”). It is important to remember that the Employment Equality Acts 1998 – 2015 prohibits discrimination on the grounds of age and recent cases before the WRC have highlighted that an employer can be found in breach of this legislation where an employee’s contract of employment is terminated because of their age.
Therefore, it is crucial that where an employer in the private sector wishes to set the mandatory retirement age, such an age must be “objectively and reasonably justified by a legitimate aim and the means of achieving that aim must be appropriate and necessary.”
This is important in the context of the WRC’s powers to award substantial compensation where an employer is found to have discriminated against an employee on the grounds of age and enforcing a mandatory retirement age. In one recent high-profile case, an employer was found to have discriminated against its employee by requiring her to retire at its mandatory retirement age of 65 and the employee in question was awarded one years’ salary being €100,000 by way of compensation.
1. Contractual Mandatory Retirement Age
Where an employer wishes to enforce a mandatory retirement age, it should ensure that the retirement age is set out clearly in employees’ contracts of employment and the employee handbook.
2. Objective justifications
The WRC have a very helpful Code of Practice on longer working which provides detailed guidance in respect of this area. In particular, the Code of Practice details examples of what might be acceptable legitimate aims for employers as follows:
- Intergenerational fairness (allowing younger workers to progress);
- Motivation and dynamism through the increased prospect of promotion;
- Health and safety in safety critical occupations;
- Creation of a balanced age structure in the workforce;
- Personnel and professional dignity (avoiding capability issues with older employees); or
- Succession planning.
Where an employer seeks to enforce a mandatory retirement age, it should consider what objective justification might be applicable and clearly document the company’s decision, while ensuring that the means to achieve this aim are proportionate and necessary.
3. Notification and consultation with employees
It is best practice for organisations intending to enforce mandatory retirement ages to engage and liaise with affected employees approximately 12 months before the employee is due to retire.
Where an employer receives a request to work for longer from an employee approaching retirement age, it is essential that such a request be taken seriously, and the company’s ultimate decision carefully documented. Consideration should be given to whether a fixed term contract, post retirement age, for a specified period, could be offered to such an employee. Further, if a fixed term contract is to be offered to an employee, this should be comprehensively drafted.
In conclusion, it is advisable for employers to tread carefully in this area and to ensure that any decisions and communications are well thought out and documented fully.