People who work until 70 will get higher pension under change starting in January

Changes to the State pensions system due to come into effect on January 1st will give people more flexibility when it comes to planning their retirement, according to Minister for Social Protection Heather Humphreys.

Under the new system, a person due to start claiming a contributory State pension after turning 66 at some point in 2024 can defer the weekly payment of €277.30 and instead indicate the age, up to 70, at which they would prefer to start drawing down the payments.

Based on current figures, they would then receive an actuarily adjusted weekly sum of €290.30 if they retire aged 67, €304.80 at 68, €320.30 at 69 or €337.20 at age 70.

They can also carry on exactly as at present if they prefer or work on and claim their State pension.

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One issue in this case is that up to half of the pension can be lost in tax by higher earners which may be paid at a lower rate when there is less income later on. Precise calculations as to who would be better off and by how much vary greatly according to personal circumstances, however, and pensions experts have suggested decisions may effectively be influenced by people’s estimation of their own longevity.

The measure is being introduced for those who turn 66 from January 2024 therefore, the first people to be eligible for a higher rate will be those who turn 67 in January 2025.

[ Fiona Reddan: Retire at 67 for a higher pension? New regime begins in January ]

The main aim of this change is to provide people with more choice

—  Minister for Social Protection Heather Humphreys

Separately, there are potential benefits in the new rules for carers or others who for various reasons do not have enough social insurance contributions to quality for a full State pension.

The Irish Congress of Trade Unions (Ictu) has welcomed the changes but said the Government should have gone further by allowing those who joined the workforce early to also leave it ahead of the normal pension age and by addressing the growing issue of compulsory retirement ages in the private sector.

Outlining the benefits of the new rules, Ms Humphreys said: “The main aim of this change is to provide people with more choice. Those who wish to get their (contributory) State pension at age 66 can still do so. They also still have the option of continuing to work.

“It may seem like the obvious choice to start receiving your pension payment as soon as you’re eligible, but this won’t be right for everyone. For example, being able to work longer and continuing to pay PRSI gives people the chance to build up contributions and potentially increase their State pension payment rate. Or you may have entered the workforce later in life and may not have the required contributions to qualify for a pension at 66.”

Ictu’s head of social policy and employment affairs, Laura Bambrick, said that while the flexibility these changes will afford workers were welcome the Government should have recognised the contribution made by people, like apprentices, who joined the workforce early and also moved to end the age discrimination inherent in many company mandatory retirement policies.

“In some other European countries they recognise that some people enter the workforce at 16 or 17, going straight from school to work onto the shop floor or onto a building site or whatever,” she said.

[ Pension schemes face regulatory clampdown if failing to engage on new rules ]

“In some cases, they are actually physically incapable of working beyond their late 50s but in Germany, for instance, you can get your full state pension three years earlier than the age if you have an insurance record that goes back 45 years.”

The changes about to take effect, she argues, meanwhile, do not actually give people working in the private sector an entitlement to work until 70, something many public sector employees can do, and so many people will only get to avail of the changes if their employer agrees to let them stay or they successfully contest a mandatory retirement policy as one employee at Eir did in recent weeks at the Workplace Relations Commission.

“There are some perfectly valid reasons for people retiring earlier and for a lot of people it is what they want to do but in many cases, people are forced to go and it is simply age discrimination. There is legislation waiting to go to Cabinet for approval that will allow people to work until their 66th birthday when they can draw down the State pension but the Government could have gone further in providing for more flexible retirement ages.”

The legislation entitling people to work until 66 has widespread support, she says, including from employers’ group Ibec.

The scale of the existing problem was highlighted by Matheson senior associate Denise Moran at a recent Legal Island employment law conference where, she said, the cost of living crisis had contributed to a situation in which “employees just don’t want to retire”.

Pointing to a 176 per cent increase in age discrimination claims at the WRC in 2022, not all of which, she noted, were retirement age related, she said there were a variety of reasons people wanted to stay on longer in the workplace but that financial considerations “are a huge part of it”.

Other regulatory changes relating to the workplace due to come into effect next week are an increase in sick pay entitlements, from three days to five, and an increase to the minimum wage from €11.30 an hour to €12.70 for those aged 20 and above.

Details of the pensions changes can be found at www.gov.ie/pension

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