Employers face tight window for AE pensions and retirement age rules
Shane Crossan, managing partner at law firm O'Flynn Exhams, says employers have a short window in which to plan for changes around pensions auto-enrolment and mandatory retirement age rules.
Employers need to carefully manage how they implement pensions auto-enrolment and mandatory retirement age regulations to avoid creating workplace divisions.
Last week's Government decision to defer the start of pensions auto-enrolment until next September may be a temporary reprieve, but in reality employers have little time to waste.
One challenge with pensions auto-enrolment will be assessing what steps they can take to minimise some employees being aggrieved at the higher benefits that will accrue to their colleagues on higher salaries, a widening gap that will irk many.
One useful step for employers would be to attend the ‘Pensions and Employment Breakfast Briefing’ in Hayfield Manor, Cork, from 8am next Thursday, October 10. Speakers will include Shane Crossan, managing partner at law firm O'Flynn Exhams, along with Laura Power, director for retirement with WTW, the global advisory, broking and solutions company.
The seminar will examine employer obligations around the rollout, funding and reporting of auto-enrolment and recommend ways to help minimise business disruption likely to be caused by the cost and administrative burdens of the scheme.
Speakers will also examine the Digital Operational Resilience Act and how it applies to pension products. This binding piece of EU legislation comes into force in January 2025 and aims to improve cybersecurity and the operational resilience of the financial services sector.
Shane Crossan advises employers to start planning key retirement milestones for each employee up to 12 months before their contractual end date.
In this , Mr Crossan outlines a pathway to employee retirement to help employers avoid common pitfalls and make the retirement process smoother for all parties.
Employers need to carry out an audit to determine who will be eligible for auto-enrolment and notify payroll ahead of its implementation. Employers also need to be aware of who auto-enrolment will apply to (see comment in Q2 below), and review and update company handbooks and contracts of employment in accordance with the new scheme. It is important that they communicate with employees and flag the changes well ahead of time. Given the additional time afforded, employers should be ready for auto-enrolment in September.
Employers may end up with two cohorts of employees potentially paying different rates of contributions and building up benefits that are very different in value. This may create employee relations issues for employers where one cohort may be aggrieved at the higher benefits being received by the other group. Auto-enrolment will not apply to independent contractors but in light of the recent Supreme Court ruling in Revenue Commissioner v Karshan (Midlands) Ltd t/a Domino’s Pizza, employers will need to carefully consider the status of independent contractors on their books. In that ruling, the Supreme Court agreed with a Revenue Commissioner's decision that Domino's pizza delivery drivers be classified as employees and not independent contractors, which has huge implications for the gig economy and employers in general. The Workplace Relations Commission has applied the Karshan decision in an employment law context in two recent decisions.
Employers need to be consistent with the application of a mandatory retirement age in their organisation. If it is inconsistently applied, it will be difficult to establish that such a contractual retirement age is a term of the contract. The Supreme Court in Mallon v the Minister for Justice & Others confirms that an individual assessment is not required for a general mandatory retirement age to be deemed lawful. It will be for each employer to determine the correct age to set for mandatory retirement in their organisation provided they can show that is objectively justified. When assessing the proportionality of a mandatory retirement age, the Supreme Court in Mallon stated that financial hardship would be a key factor. The fact that Mallon, who was being retired from his role as a sheriff, was able to work away as a solicitor appears to have been a key issue.
The Code of Practice on Longer Working provides for a step-by-step engagement with an employee approaching retirement. Employers should inform employees in writing of their intention to retire the employee within 6-12 months of the date of the contractual retirement date. This should be followed by a face-to-face meeting. It is important that any request by an employee to work longer is carefully listened to and considered at the meeting. The employer’s decision should be communicated to the employee as early as practicable after the meeting and needs to be made on fair and objective grounds, not, for example, as a cost cutting measure or to improve efficiencies. If a decision is made to keep the employee on after their contractual retirement date, a fixed term contract is advisable. Where a decision is made to refuse the request, the grounds for refusing should be set out in writing and clearly communicated. An appeals mechanism should be available to the employee. As well as the Code, employers need to have due regard for any retirement policy they have in place in their organisation.
Meanwhile, Laura Power, director, Retirement, in WTW, said: “There is much for employers to consider ahead of the implementation of Auto-Enrolment next year, with decisions to be made around how the new scheme will operate in the context of their current pension plan. Now is the time for employers to get advice to help make sense of the system and to make the best, most tax effective decisions for them and their employees.”
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