TPAS - The Pensions Advisory Service

Age Discrimination

From 1 October 2006, the Employment Equality (Age) Regulations make it unlawful to discriminate against employees because of their age.  The Regulations have a wide-ranging impact on employees’ rights to work longer and (from 1 December 2006) on the treatment of pension scheme members.

Working Longer

The regulations allow employers to set a default retirement age of 65.  An employer may choose if he wishes to set a different retirement age for their employees.  However, it is unlawful to set a retirement age under 65 or retire an employee who is under 65 (or the employer’s alternative selected retirement age if different), unless it is ‘objectively justified’ (see below).

An employee has the right to request to work beyond age 65 (or the employer’s alternative selected retirement age if different) and his employer is obliged to consider such a request.

The employer must notify the employee of his right to request to continue working at least six months in advance of his retirement date.  If the employee wishes to consider staying on, he must submit his request to the employer in writing no less than three months before his retirement date.

The request must be considered before the employee retires.  The employer must meet with the employee to discuss the request and then inform him of the decision in writing as soon as is reasonably practicable.  The employee’s employment continues until he has been informed of the decision.  The employee has the right to appeal against the decision.

If an application is accepted and the employee continues to work beyond his retirement age, the whole process must be repeated again each time he nears an agreed extended point of retirement.   

What is meant by objectively justified?

An objective justification allows an employer to set requirements that are discriminatory.  To be objectively justified, an action or rule must be a ‘proportionate means’ of achieving a ‘legitimate aim’.  Factors an employer should take into account when deciding whether a practice or rule can be objectively justified  may include:

• Economic factors (such as business needs and efficiency);
• The health, welfare and safety of an employee (including the protection of young people and older workers); and
• The training requirements of the job.

Pension Scheme Members

The regulations that impact on the treatment of pension scheme members came into force on 1 December 2006.  They cover occupational pension schemes and employer contributions to personal pension plans.  They do not impact on the state pension, National Insurance rebates into contracted out schemes, pension sharing on divorce or annuities purchased from insurance companies.

From 1 December 2006, it is unlawful for trustees of occupational pension schemes and employers contributing to personal pension plans to discriminate against scheme members and potential scheme members, on the basis of age.  Unless, there is a specific exemption, age discrimination will only be lawful if it can be objectively justified.

Typically, there are a number of age-related provisions within occupational pension schemes.  For example, some schemes have different contribution levels and different entry and retirement ages.  The regulations force trustees to treat members the same irrespective of age for some provisions but have exemptions for others.

This follow is a list of age-related provisions that remain permissible for both occupational pension schemes and personal pension plans:

Occupational Pension Schemes

• Minimum and maximum ages for admission to a scheme.
• Minimum level of pay for admission to a scheme or for treatment as pensionable pay (provided the minimum level is no more than the lower earnings limit).
• Age criteria in actuarial calculations (e.g. actuarial adjustments to take account of early and late retirement).
• Pay-related contribution rates and benefits (even though older workers tend to earn more).
• Age-related contributions to money purchase schemes (provided the aim is to provide more equal emerging benefits than would result from equal contributions for all ages).
• Equal rates of contributions to money purchase schemes, irrespective of age (despite any inequality in the emerging benefits).
• Age-related contributions to final salary schemes (provided the aim is to meet the cost of benefits provided).
• Minimum age for entitlement to receive benefits.
• Paying benefits without actuarial reduction, or enhancing benefits (for example by the award of additional pensionable service), on early retirement (as long as the right existed for members and prospective members on 01/12/2006).
•  Award of additional pensionable service to members retiring early on the grounds of ill health.
• Bridging pensions for men (and women with a state retirement age above 60) between 60 and 65.
• Reduction in a spouse’s pension on the basis of the difference in age between the member and the spouse.
• Calculating defined benefits on the basis of pensionable service (even though older workers will usually have completed longer service).
• Upper limit on pay or length of pensionable service used to calculate benefits.
• Minimum pensionable service requirement for eligibility to certain benefits (provided the minimum service is no more than two years).
• Closure of scheme (or section of scheme) to new members (even though this will be detrimental to new joiners, who tend to be younger).
• Payment of pension increases only to pensioners aged 55 or over.
• Age-related or service-related pension increases (provided the aim is to maintain the value of older members’ pensions).
• Upper age limit for payment of transfers in or out (provided it is not more than one year before the scheme’s normal retirement age).

Personal Pension Plans (including Stakeholder Schemes)

• Age-related contributions (provided the aim is to yield equal emerging benefits).
• Pay-related contributions (even though older workers tend to earn more.

Q & As

My employer is forcing me to retire at 65. Can he do this?

Yes, as long as 65 is the employer’s selected retirement age for its employees. You can apply to work beyond 65 if you don’t want to leave at that age. Your employer must consider your application but is not obliged to allow you to continue working for them.

My pension scheme’s retirement age is 60. Does this need to be changed?

Pension schemes can continue to use an age below 65 for the date when pension benefits normally become payable. However, an employer will need to be able to objectively justify retiring a worker before age 65.

My employer pays into a personal pension on my behalf. However, they make a higher contribution for my older colleagues. Is this allowed?

Age related contributions are permissible but only if the aim is to produce an equal pension for members at different ages.

My employer’s scheme has a minimum and maximum entry age. Is this allowable?

Schemes will be permitted to set a minimum, and /or a maximum age for admission to their pension scheme.

My employer pays towards a Group Personal Pension (GPP) but only if you are over 21?

Employers are permitted to set a minimum age after which they will start to pay contributions to a GPP, but entry to a GPP cannot be restricted by a minimum age.

In my pension scheme, early retirement before 60 is subject to an actuarial reduction, but if early retirement is granted after 60, it is not. Is this age discrimination?

Scheme rules that provide early retirement pensions on this basis can continue for existing members but not for new joiners on or after 1 December 2006, unless it can be objectively justified.

My scheme does not allow early retirement before age 60. Is this age discrimination?

Under the regulations, having an age at which members have a right to draw retirement benefits can continue, including setting different ages for different categories of members

In my scheme, to early retire, consent is not required if you are over 60 but is if you are under 60. Is this OK?

This could be ok if benefits are reduced for early retirement.