Irish Pensions Magazine Spring 2013
18
it’s quite possible that future legislation will deem a
contractual retirement age ‘ageist’. We’re all familiar
with companies that have in the past removed large
sections of their over-50s through early retirement
deals financed through defined benefit scheme
surpluses (!). What will future companies look like if
there is no possibility of people early retiring and little
possibility of them retiring at the normal retirement
age either?
Why would somebody retire at the age of 65 with a
pension representing say 20% of their salary and
no State pension until later? Better to keep drawing
100% as a salary.
Some industries, or some functions within some
industries, might thrive on the retention of experience
but in other cases companies will see an increasing
mismatch between their needs and what some of their
employees can deliver. Health and safety is likely to be
another ingredient into the problem because in some
cases it is not practical for employees to continue with
certain functions for instance at the age of 75.
I am not predicting that readers of this article will
re-establish defined benefit schemes en masse or
immediately recommend contribution increases but
maybe there is a toolkit of initiatives that could be
attempted over the next couple of decades. This might
include:
• Defined benefit schemes offering significantly
lower benefits – allowing for life expectancy
improvements maybe we should be targeting for
instance 50% maximum benefits at the age of 65.
• Defined benefit schemes offering significantly
lower guaranteed benefits, with an element of the
funding to provide variable benefits dependent on
investment performance. Note variable (meaning
something but uncertain) not discretionary
(meaning something or nothing).
• More innovation in designing overall remuneration.
While salaries early in a career might include
modest pension saving, as people move on in
their career, remuneration increases might be split
between salary and additional pension saving.
Companies will have to do some hard thinking in the
future. Roughly at what age would we like the majority
of our employees to retire? If the answer is below
68, companies are going to have to analyse whether
their pension offering will be sufficient to facilitate this,
especially in the event that the contractual retirement
age becomes a thing of the past.
Article Author
John O’Connell
Director
Trident Consulting
Analysis
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