Age discrimination and occupational pensions - a carve-out by elimination?

We were growing old waiting for them, but the Government has finally published the draft Age Discrimination Regulations, together with its long delayed consultation paper, 'Equality and Diversity: Coming of Age'.

The pensions section of the consultation paper ends by saying: "We expect pension schemes to be able to operate largely as they do now."

Anti-discrimination rule

The draft Regulations make it unlawful for trustees and managers of an occupational pension scheme to discriminate against members and prospective members on grounds of age in carrying out any of their functions in relation to the scheme. Essentially, these draft Regulations follow exactly the same structure as those for sexual orientation and religion. This means they import an anti-discrimination rule into all occupational pension schemes (although see 'What is not covered' below) and that harassment is also outlawed. Trustees and managers are given an amendment power by resolution to ensure compliance, and remedies are mainly through the Employment Tribunal.

Exceptions

However, pension accrual and benefit provision are, almost by definition, age-related. A whole series of detailed exceptions means in effect that the Government's expectation, noted above, should be met.

In summary, these exceptions are:

Ages for admission, entitlement and actuarial calculations

• Admission ages (minimum and maximum), including setting different ages for different employees/groups/categories
• Pension age, including different ages for different employees/groups/categories
• Age criteria in actuarial calculations, including early retirement reductions, late retirement uplifts, transfer payments, addional voluntary contribution (AVC) calculations, contributions and benefits paid, commutation
• Minimum service period for admission, including different periods for different employees/groups/categories
• Minimum remuneration for admission, including different remuneration for different employees/groups/categories
• Early or late retirement ages, including different ages for different employees/groups/categories

Contributions

• Contribution differences due to age
• Equal contributions irrespective of age
• Contribution differences due to length of pensionable service
• Contribution differences due to seniority
• Contribution differences due to level of remuneration

Benefits

• Benefits payable due to differences in pensionable service
• Benefits payable due to differences in contributions paid
• Benefits due to seniority
• Benefits payable due to different level of remuneration
• Benefits limited due to different level of remuneration
• Benefits limited by minimum/maximum length of qualifying service
• Benefits limited by minimum/maximum level of remuneration

Normal pension age

• Use of normal pension age for transfer value calculations to and from schemes
• Enhancements in certain circumstances based on prospective service

Different schemes for different members

• Closure of a scheme to new members
• Provision of different schemes for different age groups
• Provision of different schemes for different lengths of service

Dependants' benefits

• Application of age limits to dependant's benefits
• Application of various reductions, including spouses and civil partners

Other rules/practices

• Minimum age for annual increases to pensions in payment
• Age differences in relation to pensions in payment

What is not covered?

Unfortunately, it will be a case of identifying the offending rules/practices and checking them against the list of exceptions. The draft Regulations seem to specifically except all of the most common aspects of age discrimination relating to occupational pension schemes. Where there is a rule or practice that is not specifically covered in the exceptions, it will be a question of whether it can be objectively justified.

There is also a lack of clarity in relation to group personal pensions (GPP)/stakeholder pensions because of the definition of occupational pension scheme used in the draft Regulations. The consultation paper refers to employer contributions to personal pensions being covered by the legislation. Hopefully, the consultation process, which ends on 17 October 2005, will provide clarification here.

The Government clearly intends that not much, if anything, should slip through. Why, then, they did not follow the Irish Government's approach to the EU Directive and simply carveout occupational pension schemes, is a matter for them.