Pension ruling could cost £17bn

Granting
part-timers the right to backdated pension payments is a breakthrough for
workplace equality. But will employers cope with the administrative burden and
the increased costs?

Employers
are facing a new administrative burden that could collectively cost them £17bn
after part-time workers were given the right to claim backdated pension
contributions earlier this month.

The
House of Lords confirmed the European Court of Justice’s landmark ruling of May
2000 to grant part-time workers access to occupational pension rights.

This
ruling gives about 60,000 part-time workers – mainly female – the right to
claim access to company pensions or compensation, which UK workers were denied
under the Equal Pay Act. The court decided that the rule limiting backdated
claims to only two years was against EU law, and allowed claims to be backdated
to April 1976 when the court first recognised the EU Treaty provisions on equal
pay for men and women.

Last
year’s decision followed a 1994 ECJ ruling, which found that the treatment was
discriminatory as it did not allow part-time staff to sign up to company
pensions in the same way as full-timers.

The
CBI has criticised the decision. Director-general Digby Jones said, “The cost
will be substantial, and business will be worried that this could be an
administrative nightmare because in many cases records no longer exist.”

The
decision follows the ECJ ruling on two test cases involving the HSBC bank and
Wolverhampton NHS Healthcare Trust.

Its
impact is likely to be felt by all employers, but those that employ large
numbers of women part-time will be particularly affected. These include sectors
such as banking, retail, the NHS and local government. 

Adrian
Pritchard, personnel officer at Suffolk County Council said, “The ruling is a
major issue for local government, as a significant number of staff could opt
in. Between 30 and 40 per cent of local government employees are part-time,
which is hundreds of thousands of staff nationwide. The operation could run in
to millions of pounds for local government.

“I
don’t think HR in local government has the funds nor the resources to implement
the ruling if a large percentage of employees take up the right.”

Many
employers could struggle to find sufficient records to process backdated claims.
Currently, employers only have to keep payroll records for the previous seven
years.

Employment
lawyer Andrew Chamberlain of Addleshaw Booth & Co said, “Employers will be
concerned about the administrative burden and the fact that many of them may not
have records going back to 1976, which will obviously make it very hard to
calculate entitlements.”  

But
some employers and analysts believe that the Government’s estimates of the cost
to business are inaccurate. The figure could be less because of the House of
Lords’ decision to uphold the 1994 ruling to limit part-time employees’ claim
time to within six months after they have left an employer.

Simon
Cann, of HR consultancy Towers Perrin, said, “Due to the Lords confirming the
six-month rule they have saved business a great deal of money. I would estimate
that the cost of the decision will be in the region of several hundred million
pounds.”

John
Adsett, national secretary of the Association of Health Care and Human Resource
Managers,  said, “The amount of
part-time workers in the NHS has consistently been about 30 per cent. So I
envisage that the decision could cost us about £500,000 – but with out the
six-month time limit it could have been much more.”

The
fact that employers also have the right to ask employees to pay their unpaid
backdated contributions could stop a lot of part-time staff taking up the
extended pension options. Pritchard said, “The saving grace for employers is
that employees have to backdate their own contribution, which I suspect would
be too big a lump sum for most people.”

But
pensions manager of Lloyds of London Christine Jackson warned, “Companies with
non-contributory schemes will be concerned since in that case the employee does
not have to put in any of their own money.”

There
are also concerns voiced by personnel professionals, particularly in the public
sector, that HR does not have the resources to cope with the possible demand of
part-time pension take-ups. 

Adsett
said, “Administrating and implementing the extra pension claims is another
thing we have to do in the NHS, but with everything else I’m not sure we will
have the resources.”

Although
it is accepted that it will increase costs and the administrative burden, most
regard it as a positive step. Nigel Connolly, HR director of EasyJet, said,
“The effect on business will be fundamental, but with the implementation of
flexible working arrangements there is a grey area between full- and part-time
workers, so it is time for equality.”

The
build-up to the House of Lords’ decision

April
1976
       Defrenne v Sabena: Equal
pay for men and women required and enforceable under EU law, but no arrears of
pay before this date

May
1986
       Bilka Kaufhaus: Exclusion
of part-timers from pension scheme membership is indirectly discriminatory on
the basis that most part-timers are women

May
1990
       Barber v GRE: Pension
benefits must be equal for men and women, but no arrears required before May
1990

Sept
1994
        Coloroll: Clarifies Barber
and confirms that exclusion of part-timers is indirectly discriminatory. Claims
for membership backdating is subject to each nation’s time limit or April 1976

Dec
1997
        Magorrian: ECJ overrules
the UK restriction of two years’ backdating of scheme membership, but extent of
ruling is unclear

Feb
2000
         Schroeder v Deutsche
Bundesport Telekom Vick, Conze v Deutsche Telekom, Deutche Post v Sievers and
Schrage: The ECJ ruled that the restriction allowing claims no further back
than 1976 did not overrule German constitutional rights for part-timers to go
back further. In practice, the judgement applied to German cases only

May
2000
       Preston v Wolverhampton NHS
Trust and other and Fletcher v Midlands Bank: The ECJ ruled no objection to the
six-month limit after leaving employment but that the two-year backdating of
claims was not in accordance with EU law

By
Paul Nelson

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