age
discrimination and pension schemes (71)
(updating
and replacing article 21)
by
Roderick Ramage, solicitor, www.law-office.co.uk
first
published by distribution to professional contacts on 27 July 2020
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.
(update of an article first published
on 28 December 2006)
The overriding principle of the
Equality Act (EA 2010) is that discrimination, harassment and victimisation of
an individual on account of any of the “protected characteristics” listed in s4
(age, disability, gender reassignment, marriage and civil partnership,
pregnancy and maternity, race, religion or belief, sex and sexual orientation)
are prohibited, but the prohibition is not absolute. For instance, A
discriminates against B if, because of a protected characteristic, A treats B
less favourably than A treats or would treat others, but, if the protected
characteristic is age, A does not discriminate against B if A can show A's
treatment of B to be a proportionate means of achieving a legitimate aim (EA
2010, s13(1),(2)). Formerly different
characteristics were deal with by sperate legislation, in the case of age, the
Employment Equality (Age) Regulations 2006.
Pensions are inherently
age-discriminatory. Instead of a blanket
exemption for pensions, the EA 2010 deals with age in Part 5 (work) Chapter 2
(occupational pensions) sections 61 to 63 and schedule 7 part 2, paragraphs 3
to 6. The EA 2010 enacts in s61 that an
occupational pension scheme must be taken to include a non-discrimination rule. The detail however is in the Equality Act (Age Exceptions for Pension
Schemes) Order 2010, SI 2010/2133, providing specific exceptions from the
general principle of non-discrimination.
A main
legislative provisions
retirement (from work)
Compulsory retirement at any age is
age discriminatory, unless it is a proportionate means of achieving a
legitimate aim.
admission and membership
Schemes may set minimum and maximum
ages for joining and different ages for different classes of workers: SI
2010/2133, sch 1, para 1.
contributions – money purchase
Schemes may have flat rates for all
ages, different rates if attributable to differences in pensionable pay,
different rates for different age groups if to make benefits equal or more
nearly equal (whatever that means!) and limit contributions by reference to
maximum level of pay (ib, sch 1 para 4.
contributions – defined benefits
Schemes may provide for flat rates for
all ages, different rates to reflect increasing cost of providing benefits as
members get older and a limit of contributions by reference to maximum level of
pay: ib sch 1, para 5.
actuarial factors
The use of age criteria in actuarial
calculations is permitted: ib, sch 1, para 2.
accrual of benefits
Differences in the fraction of pay at which
benefits accrue or of the amounts of death benefits are permitted if the aims
is to provide the same levels of benefit
for members in comparable situations: ib sch 1, para 18.
length of service
Differences in the amounts of pension
or death benefits for members with different lengths of service is permissible:
ib sch 1, para 7. Schemes may set a
maximum length of pensionable service: ib, sch 1, para 21(2).
death benefits and life assurance etc,
It is not an age contravention for an
employer to make arrangements for or afford access to the provision of
insurance for a period ending on the employee attaining age 65 or, if greater,
the state pension age or to limit such a benefit to employees who have not
attained that age: EA 2010, sch 9, para 14.
Insurance can include death in service benefits, income protection,
medical fees and permanent health. Also
exempt are provisions for differences, for example, in the amount of death
benefits with the aim of providing a fixed proportion or multiple of pensionable
pay regardless of the length of service: SI 2010/2133, sch 1, para 18. There is however no express upper age limit
in respect of death benefits corresponding to the upper age limit for
insurance, where, for instance, a pension scheme provides an uninsured death
benefit, but the SI 2010/2133, sch 1 para 32 (see below) fixes it, if the
scheme is registered, eg, at age 75 in the case of case an uncrystallised funds
lump sum death benefit, as defined in the Finance Act 2004, sch 29, para 15.
retirement age (pension scheme)
Schemes may set any age, but a scheme
would be discriminatory if the payment of a pension below age NRA is
conditional on retirement from work or if a member’s retirement from work is
deferred but he or she cannot continue to accrue benefits. A “pivot age” for early retirement reduction
is permitted, eg no actuarial reduction for early retirement from age 60: SI
2010/2133, sch 1, para 7.
closure of sections of schemes
Sections of schemes of schemes may be
closed to workers who have not already joined it: ib sch 1, para 26.
registered pension schemes
Any rule etc compliance with which is
necessary to obtain a tax relief or exemption is permitted: ib sch 1, para 32.
B litigation
compulsory retirement
Seldon v Clarkson Wright & Jakes
[2012] UKSC 16. The employment tribunal was entitled to conclude that
compulsory retirement at age 65 is a proportionate means of achieving the
legitimate aims of retention and workforce planning.
changes to public sector schemes
Lord Chancellor v McCloud, SoS for the
Home Department v Sergeant [2018] EWCA Civ 2744. Changes to public sector pension schemes were
intended to reduce their cost required members to transfer to new schemes with
lower benefits. The CA decided, in cases
about the judges and separately the firefighters’ pension schemes, that the
transitional arrangements to protect the benefits for older members were discriminatory and were not a proportionate means of
achieving a legitimate aim.
cap on Pension Protection Fund
compensation
The compensation paid by the PPF to
members, who have not reached the scheme’s NRD immediately before the scheme’s
assessment date, is, by the Pensions Act 2004, sch 7, limited in two ways. Members will be paid 90% of the benefits they
would have received from the scheme (even if they had taken early retirement),
added to which is that the 90% is subject to an annual cap (for 2020/21 it is
£41,461 pa for a 65 year-old). Members
who had reached the NRD receive 100% compensation for their benefits with no cap. Each member must be guaranteed 50%
compensation for their scheme benefits: Hampshire v the PPF [2018] Case-17/17,
CJEU. Hughes v the PPP [2020] EWHC 1598
decided that the statutory cap is an unlawful discrimination on account of age
and must be disapplied.
END
copyright Roderick Ramage
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