Q&A: What abolishing the mandatory retirement age would mean for you . . .

Longer lives and low pension cover mean retirement may not equal serenity

Pension coverage, particularly in the private sector, is low

Pension coverage, particularly in the private sector, is low

 

The Citizens’ Assembly has called for an end to mandatory retirement from the workforce. The overwhelming vote of the 100-strong group – along with support for automatic enrolment in workplace pensions – form the centrepiece of their proposals on how best to respond to the challenges and opportunities created by the State’s ageing population.

Part of its concern lies in the widening gap between the traditional retirement age of 65 and the age at which people start to receive the State pension – currently 66 but rising to 67 in 2021 and 68 by 2028.

The assembly is not the first to turn their attention to working lives and retirements. An Interdepartmental Group on Fuller Working Lives reported to then minister for public expenditure and reform Paschal Donohoe last year that retirement at the age of 65 was increasingly impractical.

It said workers and employers need to accept that working for longer is both necessary and desirable.

Why get rid of the mandatory retirement age?

There are myriad reasons for looking again at the traditional concept of retirement at 65. Top of the list is the arbitrary nature of that age. When the retirement age was first put in place, it was chosen on economic grounds. Few enough people reached that age back then so it did not represent a major burden to the State, but it made for good optics, giving the impression of a caring State.

Now, of course, the State is worried it cannot afford to support a fast-growing group of older people. In 2017, people are living considerably longer than when the concept of retirement at 65 was first enshrined in law. And they are more healthy and active, and perfectly able to work beyond the age of 65.

OECD data says the average Irish man can now expect to live to nearly 79 and women to over 83. Some live considerably longer. That currently means 15 years or more of retirement.

In addition, an increasing burden or evidence points to people being both happier and healthier if they remain active in the workplace longer, even if not necessarily in full-time roles.

A second pressing reason is money. Pension coverage, particularly in the private sector, is low. Essentially, many people cannot afford to retire at 65 and forcing them to do so means condemning them to a life of relative poverty at a time when they remain perfectly capable of work. On several fronts, retirement does not necessarily equal serenity.

What do the numbers say?

As it stands, despite years of warnings about the need to improve the number of people covered by private pensions and the adequacy of those funds, only around 40 per cent of the private sector has a personal pension, and few of those are big enough to meet people’s expectations of income in retirement.

An average of 20,000 people are expected to reach the pension age of 66 every year between now and the end of this decade. Meantime, even with the age for access to the State pension rising to 68 by 2028, spending on State pensions is expected to jump by more than a third to €8.7 billion by that time from €6.5 billion in 2015. Public service pensions, which cost €2.9 billion in 2015 and will also rise, are an additional cost.

Would it save the State some money?

The State is already trying to limit the cost of its retirement bill by raising the age at which the State pension is paid to 66. But the irony is that much of the money the State saves on the one hand, it is paying out on the other in the form of Jobseekers’ Benefit.

The maximum State contributory pension is €238.30 a week plus up to €158.80 for an adult dependent. On Jobseekers’ Benefit, the maximum weekly payment is €193 plus up to €128.10 for a qualified adult.

And while the benefit is normally limited to nine months, there is specific provision to allow people over 65 continue to claim the benefit until they hit the new retirement age of 66.

Of course, on the flip side, if people were to continue working beyond 65, they will presumably be paying more taxes into the State coffers.

How fixed is the current retirement age?

It depends where you work. Perhaps surprisingly, the public service is somewhat ahead of the private sector in this regard. While public servants have traditionally retired at 65, those who have joined since the start of 2013 are entitled to stay in their jobs until they are 70. The earliest that cohort can now retire, leaving aside gardaí and other specific roles, is 66, a figure that will rise as the State pension age rises to 67 and then 68 in the coming years.

In the private sector, many companies have a mandatory retirement age written into their employment contracts – and in most cases that is 65.

Although employers’ group Ibec welcomed last year’s Government report on increased flexibility in the workplace around retirement, few have yet done anything to amend the terms and conditions of their employment contracts.

If people work longer, will it not close off job opportunities for younger workers?

This is inevitably thrown into the mix every time the issue of people working longer is discussed, but fears that accommodating older workers necessarily means shutting the door to young people have been debunked in recent times.

ESRI director Alan Barrett, who has produced several reports in this area, says that, managed properly, economies can create more employment opportunities as extra people enter the labour force.

He is not alone. Economists generally note there is no such thing as a fixed and finite amount of work to do in an economy. The amount of work available is driven by demand and the more money there is in the economy and in people’s pockets, the greater the demand. That’s how economies grow.

Clearly a young person cannot take the actual position being retained by an older worker. But the older worker has more money to create demand and ultimately more jobs, offering opportunities to people entering the workforce. Our own experience with recovery from the last recession shows demand leads to economic growth.

Furthermore, given our demographics, the problem in Ireland going forward is that too few younger people will be asked to support too many older people living in retirement. Allowing people to work longer would help younger people and the State financially in this regard.

Would the end of a mandatory retirement age mean I could defer taking out a pension?

A key driver of the move to raise or remove a formal “retirement age” is that most people have not saved enough in their pensions to be able to afford to retire without facing the prospect of poverty in old age.

Pensions are a long-run game, and the earlier people start the longer period there is for their investment to accrue into a fund large enough to ensure a comfortable retirement.

The move in the private sector away from guaranteed income defined benefit schemes towards defined contribution schemes makes starting a pension early even more important.

That’s why the Citizens’ Assembly strongly backed the introduction of automatic enrolment of workers in private pension schemes.

I have a personal pension. Can I still claim it at 65?

Yes, you can, although you won’t get the State pension until 66 (or later in the years ahead). The age at which you can begin to draw down a personal pension is stipulated in the plan you sign up to. Some allow you draw down pension income from the age of 50.

However, especially with defined contribution pension schemes, the earlier you start taking a pension, the lower than payment is likely to be as the fund has to sustain you (hopefully) until you die.

If it doesn’t, you’re back to relying on the State pension.

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