The new retirement: ‘My big fear is being old and poor’
The State wants you to work beyond 65, but even if you want to, will anyone employ you?
Aileen Power, in St Stephen’s Green, Dublin. Power says her joining a pension at age 23 was “pure luck”. Photograph: Dara Mac Donaill
When Mary Dunphy was approaching the retirement age of 65 she started looking for a new job; but her efforts were to be in vain.
On one occasion she persuaded a much younger friend, who had less experience and qualifications to apply for advertised positions suited to her particular field at the same time as she did.
“She was inevitably called to interview on each occasion when my applications were met with silence,” Dunphy recalls, as she bemoans the perceptions that employers have that anyone over the age of 50 “regardless of qualifications and experience is considered to be unemployable”.
Unfortunately, Dunphy’s experience is becoming all too common. As more people decide to stay on in the workforce after the traditional age of retirement – either for personal or financial reasons – employers appear unwilling to embrace the trend.
In part, the drive towards getting people to work longer is coming from the State. After all, it has a keen interest in keeping people working longer; the longer they work, the less of a burden they will be. With costs of servicing the State pension expected to rise from just over €6.5 billion in 2015 to about €8.7 billion in 2026, it’s a no-brainer.
Already, to save costs, the qualification age for the State pension has risen, and it will increase to 67 in 2021 and 68 in 2028. This means that anyone born after 1954 won’t be able to access the State pension until they are 67, while those born after 1960 will be 68 before they can draw it down.
And the pension age may yet rise even further. Earlier this year, then minister for social protection Leo Varadkar mooted that he wanted to push forward legislation which would give people a larger State pension if they stayed in the workforce longer, while means testing the State pension of €235 a week has also been floated as an idea.
Now, the economic think tank, the ESRI, has just suggested that 70 should be the new age for the State pension.
We can’t afford to stop
While the State wants people working later to shore up its funding shortfall, it’s not the only driver. Many of us simply won’t be able to afford to stop working.
Just 53 per cent of the population has a personal pension, which means that 47 per cent of the Irish workforce will be depending on a State pension of €235 a week. And even those that do have another pension, either from their job or through a personal retirement savings account or other structure, probably won’t have enough. Data from Irish Life shows that the average member of an Irish defined contribution scheme is set to retire on a pension of just 17 per cent of their salary.
“The reality is that some people retiring may be in a very vulnerable position, if they have no pension and ongoing financial commitments,” says Eilis Barry, chief executive of the Free Legal Advice Centre.
The closure of many defined benefit schemes, which guaranteed a third or half of final salary in retirement, means that the generations yet to retire won’t be making too many opera trips to Italy or six-week winter holidays in Spain. Early-bird dinners and trips to Lidl are more likely.
And the long-term trend of lower interest rates means that a generation of retirees may eschew annuity type products, which pay a guaranteed income for life, in favour of approved retirement funds whereby they keep their investments vested, and rely on draw-downs for income.
But how much of this approved retirement fund is it safe to spend? And what if market turbulence hits your funds badly and you can no longer replenish them?
Defined benefit or final-salary pensions will soon be consigned to history, leaving generations of workers relying on their own savings – and increasingly on the State.
Women ‘penalised by the State’
Women, in particular, are staying in the workforce much longer, but whether that’s for the pleasure they get in working, or because of inadequate pension plans, is unclear.
In 1998, just 6,900 women aged 65 or over were working; today that figure is almost 20,000. A study from Public Policy last year found that the mean weekly pension income of men is €397 – 58 per cent higher than that of women, €252 – and women are far more dependent on the contributory pension, accounting for 49 per cent, on average, of total income.
Women are being penalised by the State, Dunphy believes.
It’s a curious anomaly of Ireland’s State pension system that if you worked in the 1960s, 1970s or 1980s, then stopped to raise a family, before re-entering the workforce, you could end up with a smaller pension than if you had only started working in your later years. But for thousands of women like Dunphy, this has been their experience.
Dunphy began her working life in 1966 as a clerical assistant in the public service. Six years later she got married, and due to the “dreaded marriage ban”, (removed in July 1973), she was made redundant.
Living in Balbriggan, north Dublin with her husband and three daughters, Dunphy reared her family and embarked on a number of voluntary roles.
But she still harboured an ambition of returning to the workforce. In 1998, at the age of 49, she did a Fás course, subsequently interviewed for a position as a medical secretary in a north Dublin surgery, got the job, returned to the workforce, and after a few years became practice manager. She left as she was approaching 65.
When she reached 65 the Department of Social Protection averaged her PRSI contributions over 47 years, which meant that a third of her contributory pension was deducted.
“If I had never worked until 1998 I would be in receipt of a full old age pension,” she says.
It’s a situation Dunphy deems to be deeply unfair, noting that the Homemaker’s Scheme, which allows 20 years of time spent out of the workforce to be disallowed against your PRSI record, was only introduced in 1994, and “so deliberately omits all those who were forced to leave work due to the marriage bar prior to 1973”.
“Those same women who were relied so heavily on by the State to give their time post-marriage to caring duties are being penalised heavily and shamelessly by the same State,” she says.
In the end retirement wasn’t for her.
Despite turning 67 last year, Dunphy was called back to her original position at the medical practice on a short-time basis – and hasn’t left yet.
“I do at 68 find this quite tiring to be honest, but am very pleased to feel that I am still appreciated as being capable of contributing to the workforce.”
We’re already working longer
So far so simple perhaps; the State can’t afford for us to retire, and we ourselves won’t have saved enough to retire, so the solution will be to keep working.
But more of us are already working past the traditional age of retirement. In less than two decades, the number of older people staying in the workforce has risen sharply. In 1998, just 48,000 people aged 60-64 and 34,300 people over 65 were still working. Today, according to the Central Statistics Office, some 112,000 60-64-year-olds are still working, and 66,000 people aged 65 and over are still in the workforce – roughly double in both age groups.
Where are they working? Not for high-tech multinationals in Dublin’s Silicon Docks, nor waiting tables in restaurants. Figures from the CSO show that a disproportionate number of the over-65s work in the agriculture, forestry and fishing sectors. These areas account for more than a third of 65-plus workers – compared with just 5.3 per cent across workers of all ages.
So while there has been a shift towards working later, it appears to be driven partly by self-employed farmers – rather than traditional organisations embracing late-in-life workers.
40s: ‘I fear being old and poor’
Younger workers have very different experiences. Few are as adequately prepared as Aileen Power. Power works in the pensions industry so you’d expect her to be well prepared for retirement. But she says she started her first pension “by accident” at the tender age of just 23, when working as a bond dealer in London.
“It was pure luck, I knew nothing about it [pension], but a trusted colleague told me about it,” she recalls.
So she started matching contributions made by her employer into the scheme, and, when a subsequent move to Paris beckoned, she also ensured she was a part of the defined benefit scheme.
Since then, she has been firmly focused on her pension, and, now in her 40s, already has 15 years of her retirement “funded adequately” and 10 years “not awful” – but needs more funding.
It’s true that she can rely on the investment expertise of her colleagues at Standard Life, but she has also keenly tracked her fund’s performance.
“I do look at my online pension account reasonably regularly. It would cheer you up that after a year of saving – you have way more money in your nest egg and you can see the rewards of your saving efforts.”
She’s also not afraid of changing her investments – even if she has made mistakes along the way.
“I got a fright with the 2008 crash and moved a lot of additional voluntary contributions out of equities into lower risk corporate bonds which was a mistake because I missed the big bounce back in value that equities have since enjoyed,” she recalls.
Power is also willing to make some sacrifices now, to ensure that she has a decent standard of living in retirement.
“I don’t go away for weekends that often, and I don’t go out for dinner that often. They are treats and they are planned for. I want to be sure that I have comfort when I’m older . . . I do think that you have to make sacrifices”.
“One of my biggest fears is to be retired, old, cash-strapped and dependent on other people,” she says. Instead she has her eye on prolonged periods in the sun in South Africa.
To this end, Power is saving hard. For her, the “real meat” or “rocket fuel” in her pension savings comes from additional voluntary contributions she says, and she puts aside €500 a month (which costs €300 after tax savings are factored in) into these.
“They’re still the best kept secret – more people need to embrace them,” she says.
Early 30s: ‘We don’t trust banks’
John Wilkinson’s approach is more typical of his generation. He’s 33, knows he needs to start providing for his retirement, but is underwhelmed by the options available to him.
“I’m standing here with a little bit of money each month and I’d love to put it somewhere but don’t know where to put it,” he says.
For many people like Wilkinson, who is currently not paying into a pension plan, a mistrust of financial institutions and a disenchantment with the opaqueness, inflexibility and sheer uncertainty of pensions, is paralysing them.
So-called “millennials”, many of whom came of age during the recession, are “a little bit more cuter” about where they put their money, he says.
“We don’t have much trust in the banks,” says Wilkinson, “we’ve all seen people queuing outside banks in Greece”.
“We’re wise to the fact that there’s a lot of mistrust and we’re just too afraid about what to do; but at the same time we’re being very naive that we’re not putting our money anywhere.”
It’s not that he hasn’t considered a pension before. When he took out his mortgage with one of the banks he was invited to have a chat with a pensions adviser, which he duly did. He wasn’t convinced.
“At the end of the conversation I said, ‘Let me clarify this – I give you €300-€400 a month and when I’m 60 you might give it back to me’. And she said yes”.
The experience left him with little confidence in pensions.
There is also the potential for a pension with his employer but it’s “something I haven’t really looked into yet”.
There is a lot of procrastination from his peer group, he concedes. “I don’t know too many people who have pensions. Some people are putting money into a pension but they don’t know how much they’re putting in, or how much of a return they’re getting.”
The structure of the industry is not meeting younger people’s needs, he feels.
“We’re an online generation, we want to be able to see things online, we want to be able to look at a dashboard and see how well our pension is doing. I don’t think there’s really anything out there like that.”
Retire when you want?
At least Power and Wilkinson have time on their side. Older workers have less choice. Are employers prevented from discriminating against older workers? Well Irish law is now governed by a European directive which means that employers can no longer set mandatory retirement ages – unless they can objectively justify it with a legitimate aim.
“Employers will have difficulty justifying the compulsory retirement on the basis of cost alone,” says Barry, adding, “they will also have problems justifying the retirement if they say they want to make room for younger employees to promote, and then go out and hire someone externally”.
However, court precedent shows that employers are justifying it.
Back in 2008 a retired garda, Martin Donnellan, lost his case when the court ruled that a mandatory retirement age of 60 was necessary to ensure that talented younger people could move through the ranks of the Garda, and that restoring the age to 65 would create a blockage at senior level.
Indeed, employers still appear to have a preference for employees leaving the workforce at the age of 65. Despite the jump in pension age to 66 in 2014 for example, it has been estimated that only 6 per cent or so of companies have responded to the measure by increasing their own retirement ages to keep them in line with entitlement for the State pension.
“The vast majority still have the standard 65 as the established retirement age, either in contract or by custom and practice or by pension arrangements,” says Tony Donohoe, head of social and education policy with employer’s group Ibec, adding, “there is a disconnection between the established cultural norms of retirement and State pension age”.
Where employees do tend to stay on after retirement, it’s usually via a fixed-term contract.
“It gives them [employers] and employees flexibility,” says Donohoe. Of course while this arrangement might suit employees who have adequate pension arrangements, it’s unlikely to suit those who have no option but to work and are relying on their salary to survive.
‘Look as young as possible’
Indeed it’s hard to avoid the cold hard truth that employers simply don’t want older employees. Yes, they’re more experienced but they’re also more expensive and are perceived to be less able for a heavy workload.
Ronan Colleran, chief executive of recruitment firm Azon, is frequently disheartened by the job prospects for older professionals.
“It’s a lot harder than media or employers portray it to be,” he says. Despite the many years of experience and qualifications applicants in their 50s and 60s will have for a job, he believes that an “unconscious bias” works against candidates of a certain age getting a job.
“The evidence I see out there is that US employers who are based here have a bias towards candidates sub-30 years “who can run hard” as would be the case in New York or with the tech firms in Silicon Valley,” he says, adding, “they don’t necessarily say they have a bias towards that, but you can see the trends in who gets picked at the end of the day”.
They want someone who it wouldn’t be the last role for them, so they “wouldn’t be winding down they would be winding up,” he says.
“If I post a chief financial officer role out there in social media I’ll be inundated straight away with a large pool of candidates in their 50s/60s who are sitting at home and have been looking for a job for quite some time,” he says.
Some are willing to take a hefty pay cut to secure a job, but this doesn’t help either. Even if an experienced candidate, who may have been earning €150,000, offers to take on a role for €80,000-€100,000, it doesn’t tend to impress employers, Colleran says.
“They’d rather take somebody who’s on €60,000 and give them a rise to €80,000, rather than someone who’s stepping down from €140,000 to €80,000.”
Younger candidates, the perception goes, will be easier to mould – and to manage.
“There is a general discomfort around younger people managing older people,” says Colleran, noting that it’s not just those in their 50s and 60s who can be at end of this discrimination.
Colleran concedes that it’s “very disappointing” that the advice he has for older people looking for a job is to “look as young as possible in both appearance and dress attire and be as flexible as possible when involved in a recruitment process”.
But it’s getting harder and harder to hide your age these days, with your LinkedIn profile likely giving clues as to your age.
Mid-50s: ‘I never considered a pension’
Longford man Damien Tighe never had a pension plan. A serial entrepreneur, he decided to invest in something else – himself.
“I never considered a pension plan; it’s something you don’t think about, it never came into my mind. The way I’ve seen people investing in pensions and losing their money during what they call the boom times . . . no, I invested in another way,” he says.
Self-employed for the past 25 years, Tighe started four different companies and sold three of them, including an electronics import/export business based in Shannon.
It means that the lack of a pension plan hasn’t hindered his finances – fortuitous perhaps given that he is a father of four, and with 18-year-old twins, financial responsibilities remain.
“I was lucky enough,” he says, “I don’t have to worry too much about money.”
Now his business ventures are all about “the kick I get out of it”.
“It’s got nothing to do with money anymore. It keeps your mind going; I’ve met people who retired at 66 and they don’t know what to do with themselves.”
At age 57 he moved into hydroponics, and now, at the age of 64 he’s launching his next venture, “Life Boost Juices”.
“We are what we eat,” says Tighe, adding that his juices help people suffering with cancer, cirrhosis, and dementia.
But working in his 60s means working at a slower pace. “I just pace myself better. These days there’s no pressure, you enjoy what you’re doing so there’s no great hardship in it,” he says, adding, “I remember running businesses and Monday morning you’d be worried that you wouldn’t have enough money to pay your staff by Thursday”.
To upskill (“I’m a bit rusty”), Tighe embarked on the Ingenuity course in Limerick, which aims to help entrepreneurs over 50 to fast-track their businesses.
“When I ran the electronics business in Shannon, the only way you could communicate with the states was either by telephone or ending a fax. Our old fax machine was on a roller, and it took 10 minutes to send one thing”.
Now he’s au fait with Twitter and Facebook, and doesn’t ever envisage the day he stops working.
“If I was 75 I’d still be working. You never think of not working; you can’t basically these days, you have to keep your mind active.”
Hiring older employees
For it to change, Colleran says we need more “positive stories” about companies hiring older employees, much like we’ve seen with paternity or maternity leave.
Indeed it’s a challenge that employers have yet to embrace. While many people will simply not be in a position to physically work in their late 60s, and will depend on jobseeker’s benefit until their State pension kicks in, others will want to, and need to, remain in the workforce.
But if an employer tells you it’s time to go, your only option is to question their stance by taking a case to the Workplace Relations Commission.
Will you have the appetite for such a move at that hour of your life? If you win, will you be able to return to a company that doesn’t want you? Or will you be able to afford not to?