Pensions, Technology (... if you rely on this it serves you right)

Tuesday, 28 November 2006

Age Discrimination

So, the draft regs have been published. This implements Directive 2000/78 EC, which makes it illegal to discriminate directly or indirectly in the workplace due to age, which also applies to Pension Schemes. From the notes:

Direct and indirect discrimination
Discrimination on the grounds of age can be direct or indirect. Direct discrimination occurs when the trustees/managers or an employer treat a worker less favourably than other workers on the grounds of age. Indirect discrimination occurs when a rule, practice, action or decision which is apparently age-neutral in fact disadvantages workers of a particular age.
...
Choosing a comparator
If a worker claims he has suffered from age discrimination, he will need to show that he has been treated worse than another worker who is in the same position as him except for age. If no such actual worker exists, the claimant can compare himself with a "hypothetical" comparator.
...
"Objective justification" test
The Directive allows direct or indirect discrimination if it is "objectively justified" i.e. if it pursues a "legitimate aim" and is a "proportionate" means of achieving that aim.
Legitimate aims might include business needs, efficiency, reducing staff turnover or providing promotion opportunities to retain good people.
To be "proportionate", there must be a balance between the discriminatory effect of a measure and the importance of the aim being pursued. A measure will not be proportionate if an alternative exists that is less discriminatory.

So...
Within these guidelines schemes can discriminate due to age in various sensible ways :

- People who earn more can have more contributed even if they tend to be older.

But...
A company can close its defined benefits arrangement to new joiners but continue to allow existing members to remain in the scheme for future accrual (or for a deferred pension). The company may decide to offer alternative [DC] pension arrangements to new joiners (but is not obliged to do so).

Now,
The regulation may well explicitly exempt this, but I would point out
(a) After a couple of years, the age distribution of the two schemes will diverge. There is now a comparator.
(b) Exactly how do you objectively justify this? I can think of a few.
1 The closed section relates to staff who arrived in a merger, so they had to give those terms and no-one else got it.
2 Generally speaking the level of pension the DC member will get is the same as a DB member

Otherwise I can see challenges at the ECJ.
I can see that one might say that it should be possible to change employees terms so that people who joined before a certain date get different benefits to thos who join after - but - please explain the objective justification (unless Directive 2000/78 EC exempts this).

No comments: