Uncertainty remains on retirement age equality

Uncertainty remains on retirement age equality

Published:

Author: Alexandra Ventham

Applies to: UK wide

Over quarter of a century on.the application of equal treatment to retirement ages is still uncertain.

The Court of Appeal has ordered a reference to the European Court of Justice (ECJ) in proceedings brought by Safeway regarding the equalisation of normal retirement ages (NRAs) in its final salary pension scheme, the Safeway Pension Scheme (the Safeway Scheme).

Background - equalisation of NRAs

Since the judgment in Barber Guardian Royal Exchange Assurance Group [1991] 1 QB 344 (Barber) in May 1990, it has been known that the principle of equal pay for men and women applies to UK occupational pension schemes. This means that since 17 May 1990, schemes have been required to operate the same NRA for men and women. At that time, many schemes had an NRA of 65 for men and 60 for women and, unless steps were taken properly to amend schemes, benefits have been 'levelled-up' requiring an NRA of 60 for both men and women.

Many schemes took steps in the early 1990s therefore to 'level-down' benefits to provide for an NRA of 65 for both men and women. However, some schemes have later found that the steps they took were ineffective and that scheme liabilities are significantly greater than they had thought.

Background - attempts to equalise NRAs within the Safeway Scheme

The Safeway Scheme had an NRA of 65 for men and 60 for women. Following Barber, it issued an announcement to members in September 1991 (the Announcement) indicating that NRAs for men and women would be equalised at 65 with effect from 1 December 1991. A further announcement was issued to members on 1 December 1991 confirming the same.

However, no changes were made to the Safeway Scheme's formal governing documents until May 1996, when a replacement definitive trust deed was adopted (the 1996 Deed).

The Safeway Scheme's amendment power provided that:

'The Principal Company may at any time and from time to time with the consent of the Trustees by Supplemental Deed executed by the Principal Company and the Trustees alter or add to any of the trusts powers and provisions of the Scheme. and may exercise such powers so as to take effect from a date specified in the Supplemental Deed which may be the date of such Deed or the date of any prior written announcement to members of the alteration or addition or a date occurring at any reasonable time previous or subsequent to the date of such Deed so as to give the amendment or addition retrospective or future effect as the case may be.'

The High Court held that the amendment power required amendments to the Safeway Scheme to be made by deed. As such, it was held that the Announcement did not equalise NRAs. Further, the court considered that a retrospective amendment to equalise NRAs breached the principle of equal treatment and, therefore, the 1996 Deed was not effective to equalise NRAs retrospectively notwithstanding the explicit power in the amendment power. Safeway appealed to the Court of Appeal.

Court of Appeal's judgment

Two key questions were considered by the Court of Appeal:

  • Could the amendment power be exercised by announcement only?

The Court of Appeal held that the amendment power could be exercised only by deed. It noted that the first part of the amendment power refers to a single method by which a change could be made, being by deed. The second part of the amendment power refers to when amendments can take effect. It considered that to interpret the amendment power to allow the Safeway Scheme to be amended by announcement would strain the objective meaning of the words of the power.

  • Secondly, is the power to amend retrospectively prohibited by the principle of equal treatment?

Unlike the High Court, the Court of Appeal was not persuaded that the principle of equal treatment prevented an amendment which retrospectively 'levelled-down' NRAs to 65 for both men and women.

The Court of Appeal commented that the ECJ ought to consider whether, in a case like this where there is an undoubted power to 'level-down' benefits retrospectively, this is restricted by EU law and the principle of equal treatment.

Conclusion

The reference to the ECJ by the Court of Appeal has come as a surprise to many in the pensions industry, as many considered it firmly established that EU law prohibited equalisation of NRAs retrospectively, notwithstanding any express power in a scheme's amendment power.

Many pension schemes in similar scenarios may have already made a decision that attempts to equalise NRAs retrospectively were ineffective. As such, both pension practitioners and pension schemes in a similar position to the Safeway Scheme will eagerly await the ECJ's decision on this matter. However, the key will be in the detail of a particular scheme's amendment power which, as ever, will require close analysis.

Disclaimer

This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.