# State pension changes.What does it mean for private pensions.



## SIN25 (15 Mar 2013)

Hi,

Could you help me in relation to Defined benefit and Defined contribution schemes and the changes in the age of eligibility for the State pension.


What does it mean for the  schemes and can it be sorted? 

All your help is greatly appreciated.


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## LDFerguson (15 Mar 2013)

Private pension schemes (Defined Benefit or Defined Contribution) operate independently of the State pension. Although traditionally many pension schemes were set up with a retirement age that coincided with the State Pension, the fact that the State Pension age is being changed does not automatically have an impact on private schemes.  Each individual scheme must make its own decision as to what retirement age it sets.


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## SIN25 (15 Mar 2013)

Thank you for your reply.
If i could ask you to give me a bit more detail? If there is an extra 1 or two years that members are paying in will that make a great deal of difference?

This is the question im trying to answer:

Assume you are a HR adviser, financial accountant, business manager or pension consultant. 

Your employer / client operates a Defined Benefit scheme, which is integrated with Social Welfare and was closed to new entrants five years ago, and a Defined Contribution scheme, not integrated, which was set up five years ago. Normal Retirement Date under the rules of both schemes is a member’s 65 the birthday.

 explain the changes in the age of eligibility for the State pension, advising of the implications for both schemes and recommending what can and should be done to tackle the issues arising.​Thank you

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## bigbustour (19 Mar 2013)

A DB scheme that is integrated means that at age 65 when a employee chooses to retire their pension is calculated factoring in the availability of the state pension. When an employee retires at 65 in an integrated scheme and the state pension entitlement has changed to 66 the shortfall of the 12k per annum needs to be made up by the employees pension scheme. 

Because of the rules of how pension benefits are paid the 12k difference needs to be funded for the full retirement and not just 1 year. This can put huge strain on already creaking DB schemes without some kind of legislative change to address this issue.  

For a non integrated DC scheme this shortfall is not the employers liability


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## Conan (19 Mar 2013)

Bigbouster,
I don't necessarily agree with your comment. If a DB scheme operates on an "integrated" basis then it promises a benefit which takes into account the expected State Pension. The fact that the State Pension is now only payable from age 66 whereas the DB scheme has a retirement age of say 65, does not automatically mean that the scheme has to pay the State Pension for one year. It all depends on the rules of each scheme.

I don't understand why you state that the scheme would have to fund the State Pension for the full ret ire net period. At most it will be just to bridge the difference in the two retirement ages.


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## JoeRoberts (19 Mar 2013)

bigbustour said:


> When an employee retires at 65 in an integrated scheme and the state pension entitlement has changed to 66 the shortfall of the 12k per annum needs to be made up by the employees pension scheme.


 
That is very misleading advice.
This is a very grey area and even if the wording of a scheme could be interpreted that the employer bears the extra cost it is unlikely that any employer would accept it. Most schemes are underfunded as it is.
The implications would mean that the employer would have to accept 2 years liability when the pension age rises to 67 and then 3 years when it rises to 68. These liabilities are not currently included in scheme liabilities and to accept them would require immediate accrual based on time served.
You could write to the Trustees of the scheme for clarification of how they will handle it. 

Another related and emerging issue that is gaining momentum as a result of these changes is whether or not an employer can force retirement at age 65. Even a retirement age of 65 in a written contract is not guaranteed to hold up.

However, many employers will want to keep the age 65 retirement date and therefore in negotiations may be willing to do something to fund the pension gap. But it is likely to be outside of the pension scheme.


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