Working past retirement age The pension implications of new legislation

By creating a legal mechanism to bridge the gap between early contractual retirement and the State pension age, the Act introduces complex financial and structural questions for both State and private pension arrangements. Our Pensions team summarises the key changes introduced by the Act and considers their potential impact on both State and private pension arrangements.

What you need to know

• The Act allows employees to request to work past their contractual retirement, significantly impacting State and private pension planning.
• The State pension can be drawn down at age 66 while working, or deferred until age 70 to increase PRSI contributions.
• Private pension impacts depend heavily on product type.
• Employees may access flexible tax-planning through phased retirement or segmenting different portions of their private pension benefits.
• Employers must urgently audit occupational schemes to align ongoing contributions and critical risk benefits like death-in-service.

Changes to the law around contractual retirement age have been introduced under the Employment (Contractual Retirement Ages) Act 2025. In broad terms, the Act allows an employee to request to remain in employment until the State pension age of 66, even where their contract of employment provides for an earlier retirement age. If an employer wishes to enforce the earlier contractual retirement age, it must be able to objectively justify that decision. This will affect the timing and operation of pension benefits.

The State Pension: choices and deferral

Crucially, the Act does not amend State pension eligibility rules; rather, it changes how employees manage the transition into it. Because entitlement to the State pension is linked strictly to age rather than employment status, individuals face two primary choices if they choose to continue working:

• Simultaneous drawdown: An employee can generally begin drawing down their State pension from age 66 while continuing to work and earn a salary, subject to income tax implications.
• The deferral option: Employees have the option to defer drawing down their State pension between the ages of 66 and 70.

Why defer? Deferring allows the employee to continue making PRSI contributions and enhance the State pension that is payable at their date of actual retirement. For individuals with gaps in their employment history, these additional contributions can help increase their personal rate of payment or assist them in qualifying for the State pension.

Importantly, the Act does not itself amend State pension eligibility rules. Rather, it creates an employment law mechanism which may allow employees to bridge the gap between an earlier contractual retirement age and State pension age. Employers should therefore be careful not to present the Act as changing State pension entitlements. The pension position will continue to depend on the employee’s age, PRSI record and any decision to draw down or defer the State pension.

Impact on private and private-sector pensions

The impact of the Act on private and occupational retirement savings is highly nuanced and depends entirely on the specific rules of the underlying pension contract.

Depending on Revenue rules and the specific terms of the pension arrangement, some employees may not need to access their benefits immediately upon hitting their old retirement age. Additionally, they may be able to segment their pension benefits, accessing different portions of their pot at different ages, providing significant tax-planning flexibility.

Where an employee remains in employment beyond their contractual retirement age, both the employer and the employee should consider how the relevant pension arrangement operates during that extended period. In particular, they should check whether:

• Pension benefits can be deferred until the employee actually retires
• Employer and employee pension contributions will continue after the contractual retirement age
• Risk benefits, such as death-in-service, income protection or life assurance, continue beyond normal retirement age
• The investment profile of the retirement fund, as any change to the retirement age may impact strategies such as lifestyling
• The scheme rules, pension contract and employment contract are aligned, and
• Any employee communications, retirement policies or pension booklets need to be updated to reflect the Act

Employers should also consider whether continued employment affects insured benefits or scheme administration, particularly where those benefits were originally designed to end at the contractual or normal retirement age.

Essential pension checklist for employers and trustees

Because the Act effectively pauses an employee's contractual retirement age until a request is formally declined, employers and trustees must urgently audit their existing schemes to ensure compliance and structural alignment.

• Contribution continuity: Determine whether employer and employee pension contributions will, or must, continue during the extended working period.
• Risk and ancillary benefits: Review whether critical insured benefits, such as death-in-service coverage, life assurance or income protection, are designed to automatically terminate at the old contractual retirement age. If so, coverage must be renegotiated with providers.
• Legal document alignment: Ensure that scheme rules, individual pension contracts and updated employment contracts are fully aligned to prevent accidental breaches of pension rules.
• Investment alignment: Any change to a retirement age could result in required changes to an investment strategy.
• Documentation updates: Revise all member communications, retirement policies and pension booklets to reflect the new legislative landscape.

Conclusion: Navigating the pension pivot

The Employment (Contractual Retirement Ages) Act 2025 completely changes the mechanics of retirement by effectively pausing an employer's ability to enforce a traditional retirement date. However, because the primary goal of the legislation is to eliminate the income gap before the State pension kicks in, the ultimate success of extending an employee's career rests on how seamlessly their pension architecture can be adapted.

Immediate, proactive review is required from both sides of the employment contract to align these new timelines.

For employers and scheme trustees: structural alignment

Moving forward, a decision to extend an employee's working life beyond their old contractual retirement age triggers a mandatory audit of company-sponsored pension frameworks:

• Review scheme rules: Consult with your trustees and pension providers to see if occupational scheme rules automatically force a benefit payout at the historical contractual age, or if they allow for deferred retirement.
• Determine contribution continuity: Clarify the contractual and scheme obligations regarding ongoing employer and employee pension contributions during the extended working period.
• Audit insured and ancillary benefits: Crucially, check the fine print on risk benefits such as death-in-service coverage, life assurance, and income protection. Many policies are designed to automatically terminate at age 65; these must be actively renegotiated with underwriters to ensure coverage continues.

For employees: Maximising financial flexibility

If you choose to utilise this legislation to bridge the gap to your State pension age, your immediate priority should be a comprehensive financial and pension health check:

• The State Pension strategy: Weigh the financial pros and cons of drawing down your State pension at 66 while simultaneously earning your salary, versus utilising the deferral option up to age 70 to maximise your PRSI contribution history and personal payment rate.
• Assess private policy rules: Meet with your private pension provider (PRSA, Occupational Scheme, or Buy-out Bond) to understand how a delayed retirement impacts your benefit access. Explore flexible tax-planning avenues like segmenting or phasing your retirement drawdowns.

Contact our Pensions team

The content of this article is provided for information purposes only and does not constitute legal or other advice.