Age discrimination and age-related pension scheme contributions

Age discrimination and age-related pension scheme contributions


Author: Suzanne Burrell

The European Court of Justice (ECJ) has ruled on the validity of age-related contributions in a money purchase pension scheme, confirming they are permissible provided they can be objectively justified.

A recent case considered by the ECJ - HK Danmark v Experion A/S [2013] EUECJC-476/11 - concerned a pension scheme in Denmark set up for employees, under which employer contributions were provided at the following rates: 6% for under-35's, 8% for 35 to 44-year-olds, and 10% for people aged 45-plus.

The ECJ confirmed that the reasons for paying age-related contributions given by the Danish government were legitimate and could amount to the necessary justification.

Reasons cited by the Danish government included helping older workers build up retirement savings more quickly, and the fact that risk benefits were more expensive to insure for older workers.

The ECJ held that the principle of non-discrimination on grounds of age does not preclude age-related pension contributions, provided that the difference in treatment on the grounds of age that arose as a result was appropriate and necessary to achieve a legitimate aim.

The ECJ looked at the equal treatment directive (Council Directive 2000/78/EC (the 'Framework Directive') Article 6(1) on objective justification and Article 6(2) on age-related practices.

Article 6(2) allows Member States to provide that certain practices are exempt from the prohibition on age discrimination. It refers to setting ages for admission to, or entitlement to, retirement or invalidity benefits, including: setting different ages for employees or different categories, and the use of age criteria in actuarial calculations.

The ECJ gave Article 6(2) a narrow interpretation. It concluded that Article 6(2) has to be interpreted strictly, and that age-related contributions and contributions increases 'were liable to produce effects going beyond the mere fixing of ages for admission or entitlement to retirement benefits'. It held that the contribution banding could be objectively and reasonably justified under Article 6(1), and referred the case back to the Danish courts for a decision on this.

The ECJ said it was for the national court to establish whether age-related contribution rates genuinely reflected a reason to achieve the aims pursued in a 'consistent and systematic manner', at the same time ensuring that they did not go beyond what was necessary to achieve those aims.

It added that the domestic court should take account of the fact that the Member had benefited from employer contributions, and that the contributions she was required to pay were at a lower rate than those payable by an older employee.

In the UK, the Framework Directive was originally implemented through legislation introduced in 2006 and is now governed by regulations made under the Equality Act 2010. These take a detailed approach to Article 6(2), specifically setting out an exemption allowing payment of different rates of Member and employer pension contributions according to age if the aim is to equalise or make more nearly equal the amount of the resulting benefit.

Guidance -  
- published in 2006 by the Department of Trade and Industry said 'more nearly equal' means benefits do not need to be completely equal.

Unlike the exceptions for defined benefit schemes which cover age-related contributions, the money purchase exemption does not specifically refer to the difference being actuarial. That said, actuarial advice will provide a steer on whether the different rates should result in a 'more nearly equal' benefit.

What is not clear following this case is whether the ECJ would treat the money purchase exemption contained within UK regulations as falling outside the scope of Article 6(2).

Whether or not they would, it is encouraging to see that the ECJ has confirmed they should be objectively justifiable.