Age Discrimination

The Equality Act 2010 makes it unlawful to discriminate against employees because of their age.  The Act replaces previous Regulations which have protected members and prospective members of pension schemes from being treated unequally, on the grounds of age, by their sponsoring employers and trustees of pension arrangements since 1 December 2006.

Retirement Age

Previous regulations allowed employers to set a default retirement age (i.e. force employees to stop work) at 65 or higher.  However, it was 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 was 'objectively justified' (see below).  A default retirement age at which employers could force their employees to stop work is different from the 'normal retirement age' in a pension scheme at which benefits can be taken.

Default retirement ages are now unlawful. From 1 October 2011, employers are not able to compulsorily retire their employees unless the retirement can be 'objectively justified' (see below).  This means that an employer cannot make a member of staff retire using the default retirement age unless the member of staff was handed their notice before 6 April 2011.

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' (an appropriate or necessary way) of achieving a 'legitimate aim'.  The aim must reflect a genuine business need, and there must not be a non- or less discriminatory manner in which that need could be met.

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);
• The training requirements of the job;
• Facilitation of employment planning;
• Improving personnel management; or
• Encouraging recruitment and promotion of young people.

Pension Scheme Members

The Equality Act came into force on 1 October 2010.  Prior regulations were in force from 1 December 2006.  The law covers occupational pension schemes and employer contributions to personal pension plans.  It does not impact on the state pension, National Insurance rebates into contracted out schemes, pension sharing on divorce or annuities purchased from insurance companies.

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.

The following 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 (despite any potential inequality that might occur due to the fact that 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 (despite any potential inequality that might occur due to the fact that older workers tend to earn more). 

Recent court ruling

A case was brought to the European Court of Justice (ECJ) by two employees who were forced to retire at 65; however, the ECJ ruled that the establishment of a balanced age structure, in the interests of encouraging recruitment and promotion of young people, improving personnel management and preventing possible disputes about employees' fitness to work, was a legitimate aim.

This decision involved public sector employees, and the pension available to them was a factor in the court's decision.  It is therefore unclear to what extent the ruling would be relevant to private sector employers who wish to justify compulsory retirement.

If you feel your employer is treating you unfairly due to your age, you can challenge this at an employment tribunal.  For further information about age discrimination, please click here.

It is your responsibility to talk to your employer about your retirement options.  If you wish to continue working, it may be possible to change your working pattern and hours.

State pensions

The change in the law regarding default retirement ages does not affect your state pension age.  For more information regarding your state pension, please click here.

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