State Pension Deferral Headache For Employers

20 Jul 2020 | 10.00 am

State Pension Deferral Headache For Employers

Insight from William Fry

20 Jul 2020 | 10.00 am

Law firm William Fry has cautioned that the deferral of the increase in State pension age mooted in the FG/FF/Green Programme For Government will have an immediate impact for pension schemes and employers.

Under current legislation, eligibility for the State pension is due to increase from age 66 to 67 with effect from 1 January 2021 and then to age 68 in 2028. The PFG states that the State pension age will remain at 66 for the moment.

The increase to 67 next January will be deferred pending a report on the issue by a Commission on Pensions, which will be established to examine various issues related to the sustainability of and eligibility for the State pension.

The Commission is due to report on its recommendations in June 2021 with the government committing to act on those recommendations within six months.

According to Jeffrey Greene (pictured), partner in William Fry’s Employment & Benefits department: “One of the main drivers behind the opposition to the planned increase in the State pension age is the contractual requirement for many employees to retire at age 65. A large cohort of these retirees find themselves forced to ‘sign on’ to access jobseekers’ benefit for a year before becoming entitled to the State pension.

“The Programme For Government seeks to address this concern by removing the requirement for such retirees to sign on and providing them with an ‘Early Retirement Allowance or Pension’, albeit at the same rate as the Jobseekers’ Benefit.”

Greene adds that some pension schemes and employers have aligned the retirement age for their members and employees with the planned increase in State pension age next year.

“Those arrangements will now need to be reconsidered by trustees and employers if those employees will be able to access the State pension a year earlier than anticipated,” says Greene. “For defined benefit schemes, this change, if implemented, also has the potential to result in an increase in liabilities where normal retirement age for members is linked to the date of eligibility for the State pension.”

Greene’s colleague Ian Devlin points out that there are also employment law implications for the contractual retirement age chosen by certain companies.

“A small but increasing number of employers define their contractual retirement age as being the age at which the State pension is payable,” says Devlin.

“Employers might now find themselves losing an experienced staff member to retirement one year earlier than expected, or employees of those companies might now find themselves forced to retire a year earlier than expected.

“It is important to note however that legislation still requires the employer to objectively justify whatever contractual retirement age it has chosen.”

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