The Government's pension proposals pose as many questions as they answer, writes DOMINIC COYLE
The Government says that, over time, it is going to raise the age at which I can access the State pension to 68. What does this mean for me?
It means that, although you may retire earlier, you may not receive a State pension for some time.
At the moment, most PAYE workers in the private sector have contracts which state specifically that they will retire at 65 according to Brendan McGinty, director of industrial relations at employers group Ibec.
If you are self-employed, your retirement age is up to you.
Under the measures outlined by the Government, from 2014, no State pension will be paid until the age of 66.
This will rise to 67 in 2021 and 68 in 2028. If you are under 49, you will not receive the State pension until you are 68.
So will I not keep working until that time?
Not necessarily. Employers group Ibec says companies have employment contracts requiring staff to retire at 65 “for good reason”. Keeping older workers on longer will prevent them hiring new younger staff, generally at cheaper rates, to bring new energy to their staff. It could also pose problems for employers in areas where there is significant physical element to the job, like construction and nursing.
Pensions ombudsman Paul Kenny is of the view that contracts of employment will be renegotiated.
What about my occupational pension?
The rules of your pension scheme – whether it is defined benefit or defined contribution, will lay down the age at which you can or must draw down the benefits.
Again, for most people in the private sector, this is 65. Pension industry sources say that, for now, this continues to be the case. The Pensions Board says it is examining the framework and getting information on the detail of how it will work. At that point, it will issue guidance.
However, most defined benefit pension funds have major shortfalls.
Allowing people to defer drawing down the pension for two or three years and staying in employment could help – both by allowing members make their regular pension contributions over those years and also by shortening the length of time those people will be in receipt of a pension.
For this reason, employers agree, it is possible that some companies will be happy to agree to allow people to continue in employment.
The Minister for Social and Family Affairs, Mary Hanafin, said that there would be no real change until 2021 as, even now, the State pension is not payable until 66. I thought it was 65. Who’s right?
The Minister is splitting hairs. It is true that the “State Contributory Pension” is paid from the age of 66 – having been lowered to this level from 70 by the FG-Labour coalition government in the 1970s.
However, there is also a State Pension (Transition). This is paid from the age of 65. Like the State pension, this is paid on the basis of PRSI contributions – you must have five years’ contributions – and it is not means tested.
The only difference between the two is that you must retire – that is you cannot work – to receive the State Pension (Transition) while you are free to go back into employment even while you are on the State Contributory Pension.
From 2014, the State Pension (Transition) will be abolished, leaving just the State Contributory Pension. The age at which this is paid will then be raised in 20121 to 67 and to 68 in 2028.
What about deferred pensioners?
These are people who have already left a job but retain pension rights. Pensions ombudsman Paul Kenny says some people in this category will face a gap between receipt of their occupational pensions and the State pension.
This is because, under Revenue rules, deferred pensioners are supposed to draw down their benefits at the normal pension age stated under the rules of their particular scheme.
I work in the Public Service. Does that change things?
Existing retirement options depend on when you joined the public service. If you were employed before April 1st, 2004, you are able to retire at any age between 60 and 65 on your full pension entitlement.
Those who joined the public service since April 1st, 2004, have a retirement age of 65. But this is not compulsory and they can remain in the service indefinitely, according to Aisling Kennedy of the Society of Actuaries.
To further complicate matters, certain public sector bodies were not required to implement the 2004 change.
But I thought I read something in the framework about a new public service pension?
You did. The Government is putting together legislation that will provide a single pension scheme for all new entrants to the public service. It will provide for people to retire not earlier than their 66th birthday and no later than the age of 70.
Back to the private sector, what about AVCs?
Additional Voluntary Contributions allow people to boost their pension and are particularly useful for those who will not have enough service to maximise the pension they receive from their occupational pension scheme.
With the tax relief on pension contributions coming down to 33 per cent – from 41 per cent – for higher earning taxpayers, pensions adviser Mercer has urged people to increase the amount they pay into AVCs to maximise their tax relief at the higher rate.
Minister for Finance Brian Lenihan said this week that the Government was keeping the timing of the move to the 33 per cent rate under review but that “it will not be under next year’s budget”. It does not have to come in until auto-enrolment goes live in 2014.
Is any clarity likely?
The Government is setting up an implementation body to oversee the introduction of the measures outlined in the National Pensions Framework.
Most commentators in the pensions industry are confident steps will be taken - for financial and practical reasons – to bring the retirement age and the age at which occupational pension benefits are paid into line with the new State pension thresholds.
Both the employers and the unions are adopting a harder line at the moment.
However, with no change to State support for pensioners taking effect until 2014 there is still plenty of time to iron out any difficulties.