Pensions: past comes back to haunt pension provisions

Two recent European cases may have far reaching implications for pension schemes

Two recent European cases (Maruko and Bartsch) cast doubt over the way in which the UK has implemented the European directive on non-discrimination as it applies to sexual orientation and age discrimination in pension schemes.

In Maruko, the European Court of Justice (ECJ) decided in favour of the claimant that a person who is in a legal relationship similar to the UK civil partnership with a person who is a member of an occupational pension scheme is entitled to a survivor’s pension.

Bartsch concerned the validity of an age gap provision in a German occupational pension scheme under which a spouse more than 15 years younger than the member would not get a spouse’s pension.

In both cases, the ECJ was asked whether there should be any time limit on a judgment in favour of the claimant, and the answer was no: the spouse or partner would be entitled to a survivor’s pension based on the benefits accrued by reference to all the member’s service as a member of the scheme, not just service after the implementation of the European anti-discrimination legislation.

So why does this matter? In relation to both sexual orientation and age, the UK government has provided that discrimination relating to benefits accrued by periods of service before the relevant legislation came into force – 1 December 2003 for sexual orientation and 1 December 2006 for age discrimination – is not unlawful. As a result, most UK pension schemes and employers have dealt with age discrimination issues only for service on or after 1 December 2006.

Where the scheme discriminated on grounds of age – for example, operating a different accrual rate for employees at different ages – but that discrimination only applied to pre-December 2006 service, nothing has been done. Many schemes have routinely offered the minimum survivor’s benefits for civil partners rather than treat them equally with spouses for all service.

I believe the directive does not specifically authorise member states to limit the temporal effect of their implementing legislation, and so the UK may have implemented the directive too narrowly.

It is noteworthy that in the area of sexual orientation, UK law requires contracted-out schemes to provide equal benefits for all service after 1988 as far as the contracted-out benefits – those replacing the state benefits – are concerned, and that there is no specific time limitation on state benefits for civil partners. This suggests the government has adopted a broader view in assessing its own obligations than it has in the regulations.

Certainly, it is possible that employees could bring claims directly against their employers or the scheme in this area, without the need for a change to UK legislation.

This means that pension schemes may need to rethink their approach – survivor’s pensions ought to be provided for civil partners for all service as it is for spouses. This could have an impact on the costs of insuring those benefits.

On age discrimination, however, all is not lost. It is possible to justify age discriminatory treatment where it is a proportionate means of achieving a legitimate aim. But where schemes have not closely considered a discriminatory practice because it only applied to pre-2006 service, they will now need to look again and marshal any justification arguments to be ready to defend claims. In some cases, no justification will be found.

However, employers should wait for the final decision of the ECJ in Bartsch before making changes on age discrimination.

Key points

  • ECJ refuses to apply temporal limitation on principle of non-discrimination for age or sexual orientation in relation to pension schemes
  • UK legislation that does include such temporal limitations may be wrong
  • Employees could bring claims directly relying on the overriding EU law
  • There is an objective justification defence against claims for age discrimination
  • Schemes should review practices and prepare justification arguments
  • Death benefits for civil partners should be extended to all service.

Jane Wolstenholme is a partner at Wedlake Bell

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