age equality and pensions (2013 update)
by Roderick Ramage, solicitor, www.law-office.co.uk
first published (by distribution to professional contacts) on 31 December 2013
This article is not advice to any person and may not be taken as a definitive statement of the law in general or in any particular case. The author does not accept any responsibility for anything that any person does or does not do as a result of reading it.
The Equality Act 2010 gathers all the legislation against discrimination into one statute. Amongst the “protected characteristics” defined in this Act is age. The provisions affecting pensions are in that Act and the Equality Act (Age Exceptions for Pension Schemes) Order 2010, SI 2010/2133. The EA 2010 repealed from 1 October 2010 the relevant parts of the Employment Equality (Age) Regulations 2006, by which UK first implemented the EC Council Directive 2000/78/EC establishing a general framework for equal treatment in employment and occupation. The law apply to “workers” and not just “employees”.
The legislation deals generally with recruitment, employment and training, and provide (in summary) that no employer may directly or indirectly treat one employee less favourably than another on account of age, unless:
(a) the discriminatory treatment is “a proportionate means of achieving a legitimate aim” (EA 2010, s13(2) if the discriminating is direct and s19(2) if it is indirect), which can be important in pension issues; or
(b) age is “a genuine and determining occupational requirement” (EA 2010, s83 and sch 9), which is unlikely to be relevant to pensions.
Pensions are inherently age-discriminatory. Instead of a blanket exemption for pension schemes, the Age Exceptions Regulations makes exemptions for occupational and personal pension schemes in respectively in reg 3 and sch 1 and reg 4 and sch 2.
The topic is too big to be covered on two sides of A4 (the Age Exception Regulations take 12 pages), but I attempt below to summarise the main exceptions after a preliminary digression into employment law.
digression - retirement (from work)
It was an age discrimination under the 2006 regulations, reg 30, to require an employee to retire below age 65, unless it could be objectively justified. The retirement age exception continued in the EA 2010, sch 9, para 8, until it was repealed by reg 8 of the Employment Equality (Repeal of Retirement Age Provision) Regulations 2011, SI 2011/1069, which came into force on 6 April 2011, with transitional agreements until 30 September 2011. Now, as a result of the abolition of the default retirement age, the termination of an employee’s employment on account of age will be subject to the normal principles applicable to any act of discrimination, including considering whether it can be justified.
admission and membership
Occupational scheme: minimum and maximum ages permitted for admission (regs sch 1 para 1(a); up to five years employment before admission is permitted (reg 5); and there can be a maximum period of pensionable service (regs sch 1 para 17).
Personal schemes: minimum but not maximum age permitted for commencement of employers’ contributions (but not for joining) (regs, sch 2 para 4).
contributions – money purchase
Both occupational and personal schemes may have: flat rates for all ages (regs para sch 1 para 4(b), sch 2 para 6); different rates for different age groups, if the purpose is to make benefits equal or more nearly equal (whatever that means, 99 is obviously more equal to 100 than 98, but so is 2 more nearly equal to 100 than 1!) (regs sch 1 para 4(a) and sch 2 para 1); different rates if attributable to differences in pensionable pay (regs sch 1 para 19 and sch 2 para 2); and may limit contributions by reference to a maximum level of pay (regs sch 1 para 4(c) and sch 2 para 3). The recent ECJ decision in in HK Danmark v Experion A/S shows that “proportionate means …” can justify age banded contributions.
contributions – defined benefits
Occupational schemes may provide for: the same fraction of pay for all ages, different rates to reflect the increasing cost of providing benefits as members get older (regs sch 1 para 5); and a limit of contributions by reference to a maximum level of pay (regs sch 1 para 6).
Occupational schemes may provide for: different benefits for different lengths of service (reg 6); maximum length of service) (sch 1 para 21); different accrual rates if the aim to achieve pensions having the same fraction or multiple of pay (sch 1 para 180).
death in service
It is not discriminatory for an employer or insurance company to cease to provide insurance after age 65 or the state pension age if greater (EA 2010, sch 9 para 14), so it may be permissible to cease to provide death in service insurance after that age. BIS has stated its opinion that, because pension schemes are part of an employer’s pay and benefits package, the exemption for employers extends to trustees, although the latter are not expressly excepted by this provision. It is therefore not clear that trustees are exempt. What is clear is that an uninsured death in service benefit is not within the exemption. A mitigating factor is that a death in service lump sum (an “defined benefits lump sum death benefit” defined in para 13, sch 29, Finance Act 2004) is payable on death before reaching age 75, which probably protects an employer from a claim of discrimination for failing to provide cover from age 75, as long as the death in service scheme is registered with HMRC.
retirement age (pension scheme)
Occupational schemes may set any age as its normal retirement age (NRA), pensions may be actuarially reduced or increased if the pension is taken early or late, and there may be a “pivot age” below NRA, above which there is no actuarial reduction for early retirement.
There is however no exception: for pensionable service in occupational pension schemes to cease at NRA; and for employers’ contributions to cease in personal pension schemes.
The DTI Guidance “The impact of Age Regulations on pension schemes” December 2006, which has not been replaced, states in the introduction that the policy of the legislation is as follows.
The new requirements make it unlawful for pension schemes to discriminate against members or prospective members of a pension scheme. However, the Government recognises that many age related rules and practices are necessary for the proper operation of pension schemes. The Regulations, therefore, effectively exempt many age related rules practices, actions or decisions in relation to pension schemes.
It is a fair statement that most normal practices may continue, although employers cannot assume that this is the case without a review of the terms of their trust deeds and rules. However there remain two areas in which employers have concerns, first whether the provision of death in service benefits by trustees is in the exemption and secondly that there is no exception to cease the accrual of benefits or the payment of contributions after NRA.
copyright Roderick Ramage
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