Age Discrimination and Pensions

Occupational pension schemes – and their existing and future members – and contributions made by employers to employees’ personal pension schemes are covered by UK age discrimination legislation (the pension provisions of the Employment Equality (Age) Regulations 2006 (as amended) as incorporated into the Equality Act 2010 (‘EA’)). This legislation prohibits discrimination on the grounds of age by employees or trustees of occupational pension schemes.

It is usual for pension schemes to have a number of age related provisions but, in the wake of the EA and former legislation, unless these provisions can be objectively justified or are subject to a specific exemption, they may give rise to an age discrimination claim. A provision will be objectively justified where it is a ‘proportionate means of achieving a legitimate aim’ i.e. There is a business need that the aim actually meets that could not be achieved in a less discriminatory way. In the context of occupational pensions, this could be something like the need for employment planning.

There are some important specific exemptions for employers when working out who should be a member of a pension scheme:

It is acceptable to set minimum and maximum ages for admission to a scheme; to require a minimum level of salary before someone is admitted to a scheme (as long as it is no more than the lower earnings limit); to establish a minimum or maximum age at which the pension scheme can be joined, including different levels for different groups of workers (this does not apply to life assurance only schemes) and a minimum pensionable service requirement (no more than two years) in order for members to be eligible to specific benefits; to close a scheme to new members; or to use age criteria in actuarial calculations.

In terms of contributions, a pension scheme may have pay related benefits and contribution rates. Where contributions are age-related and made into money purchase schemes this will be exempt where the aim is to ensure more equal emerging benefits. Age-related contributions can be made to final salary schemes in order to meet the cost of benefits provided and pension increases based on years of service or on age will be exempt where the aim of this is to maintain older pension scheme members’ pension value. Rates of contributions that are made equally into money purchase schemes, regardless of the age of members will also be allowed.

When dealing with retirement for ill health or redundancy, an employer can set a minimum age for the payment of an age related benefit; stop life assurance cover where there has been a retirement on the basis of ill health once the normal retirement age under the scheme (or age 65 if there is none) is reached; or award additional pensionable service to members retiring because of ill health.

Where there is a case of age discrimination

The first port of call is the trustees of the pension scheme who are capable of amending the pension scheme in order to make sure it complies with the EA, if that is what is required. An Employment Tribunal will hear a complaint of age discrimination or, as long as the pension scheme dispute resolution service has been used and exhausted, a complaint can be made to the pensions ombudsman.