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
DISCLAIMER
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 The EA 2010 repealed from 1 October 2010 the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EA 2010, sch 9, para 8, until it was repealed by reg 8 of the Employment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).
benefits
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.
conclusion
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.
END
copyright Roderick Ramage
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