Age Discrimination and Pension Schemes

1. Age Discrimination and Pension Schemes Presentation by Alexander Mcphee and Farirai Tauzeni

2. Age Discrimination • Employment Equality (Age) Regulations 2006 from 1st December 2006. Employees now have a statutory right to work until the age of 65. Key Aspects • Unlawful for trustees or managers OPS to discriminate against members or prospective members on the basis of age where members are in the same circumstances or their circumstances are not materially different

3. Age Discrimination • It is unlawful for employers to discriminate (in relation to provision of pensions via an OPS or making contributions to PPS) on the basis of age. • Discrimination (direct or indirect) will only be lawful if one of the specific exemptions applies or if it can be “objectively justified” • Pension benefits which accrued in relation to service prior to 1 December 2006 and benefits payable prior to 1December 2006 were not affected by regulations

4. Age Discrimination • Trustees or managers of occupational pension schemes will be obliged to display any discriminatory rules under their scheme and are also given power to amend any scheme rules which allow unlawful discrimination. • Workers who suffer unlawful discrimination on the grounds of age in relation to pensions can bring a claim to an Employment Tribunal or before the pensions Ombudsman (Tony King), against the trustees/managers and/or employer.

5. Direct and Indirect discrimination • Direct discrimination occurs when the trustees/managers or an employer treat a worker less favourably than other workers on the grounds of age and where workers circumstances are the same or not materially different. • Indirect discrimination occurs when a rule, practice, action or decision which is apparently age-neutral is in fact disadvantaging workers of a particular age.

6. Age Discrimination • Direct or indirect discrimination is allowed if it: 1) is covered by a specific exemption contained in Schedule 2 of the Regulations ; www.opsi.gov.uk/si/si2006/20061031.htm or

7. Age Discrimination 2) It is “objectively justified” i.e. it pursues a “legitimate aim” and is a “proportionate” means of achieving that aim. • Legitimate aims might include business needs, efficiency, reducing staff turnover or providing promotion opportunities to retain good people • To be proportionate there must be a balance between the discriminatory effects of the measure and the aim

8. Age Discrimination • The flow chart below sets out the process to follow when considering if objective justification is met

9. Objective justification test

10. Age Discrimination • Regulations cover all aspects of OPS and apply to all types of schemes including Defined benefit, Defined contribution and hybrid schemes. • In PPS the regulations only apply to an employers contribution. • Matters which are excluded from regulations are -state pensions -national insurance rebates awarded to contracted out schemes -pension sharing arrangements on divorce -annuities purchased from insurance companies

11. Age Discriminationtrustees and managers role • Trustees and managers must ensure their pension scheme adheres to the new regulations. If trustees or managers conclude that a rule is discriminatory and not covered by any exemption then they have 3 options 1) Keep rule and justify it 2) Amend rule so that discrimination stops 3) Remove the rule

12. What it means. • Even before the introduction of age discrimination legislation, defined benefit schemes were in deficit Defined Benefit • Now factor in age discrimination legislation. Employees have a statutory right to work until they are 65 (rather than 60) and accrue an extra five years of pension rights. So, if someone has pension rights that are 1/60th of a final salary of £30,000 per annum for each year of service, this gives the individual an increased pension of £2,500 per annum.

13. What it means. Defined Contribution • For defined contribution schemes, employers must contribute until the age of 65 (where applicable). • However, if the scheme has a contribution structure that is tiered by age, that structure may only continue if it achieves a ‘more nearly equal’ outcome, whereby there is broadly the same pension outcome for all members. Tiering structures may be revised or abolished, and contributions levelled up where there are contractual issues