As other sections of this Guide explain in detail ( Equal opportunities ), it is unlawful for employers to discriminate directly or indirectly on the grounds of sex, race, age, religion, sexual orientation, or on grounds of or for reasons relating to a person's disability. Those principles apply to pension provision just as they do to every other aspect of employment. There are, however, certain specific legal provisions on sex, sexual orientation and disability discrimination in pension provision that need to be borne in mind. Employers also need to ensure that they do not breach the regulations that prohibit unjustified discrimination against those who work part-time or on a fixed-term basis.
Under the age equality legislation it remains lawful to fix minimum and maximum ages for admission to a scheme, use age-related criteria in the actuarial calculations of benefits and contributions and set different rates of contributions for different ages in order to equalise benefits for members of different ages.
Under the Pensions Act 1995 and the Occupational Pension Schemes (equal treatment ) Regulations 1995, pension schemes must not discriminate either directly or indirectly on the ground of sex. This principle applies to the terms on which people become members of a scheme. It also applies to the terms on which members are treated, but only in relation to pensionable service on or after 17 May 1990 (the date on which the European Court of Justice confirmed that occupational pensions are covered by the principle of equal pay for men and women).
The principle of equal treatment also applies to dependants' benefits, and trustees and managers must follow the principle when they use any discretionary powers that they have. Where the way in which an individual is treated by a scheme depends on his or her marital status, men and women of the same marital status must be treated in the same way.
This means that:
- the same eligibility criteria to join a scheme should be applied to men and women;
- any eligibility criteria that exclude a greater proportion of one sex than of the other may need to be objectively justified;
- men and women should be entitled to receive their pension at the same age;
- men and women with the same earnings and the same length of pensionable service in a final salary scheme should receive the same pension, at least in respect of service on or after 17 May 1990;
- dependants' benefits should be available on the same terms to the dependants of men and women.
There are some significant exceptions to the principle of equal treatment, where sex discrimination remains lawful. For example, men and women can be paid different pension benefits where this reflects their different pension ages in the state pension scheme. It is therefore lawful for schemes to offer 'bridging pensions', which give men between 60 and 65 a larger pension than women of the same age, to compensate for the fact that they are not yet receiving their state pension.
Furthermore, different actuarial factors can be used for men and women when calculating an employer's contributions to a scheme, if the factors reflect the differences between the average life expectancy of men and women and are set with a view to providing equal pension benefits for men and women. Different actuarial factors can also be used for men and women when calculating the size of certain benefits, including the lump sum into which a pension can be commuted, the pension that can be bought with a lump sum and money purchase benefits.
The principle of equal treatment in pensions is enforced in the same way as the right to equal pay for men and women, as explained elsewhere in this Guide (sex discrimination in pay ). Therefore a woman is entitled to claim equal pension benefits with a man who is in the same employment as her and employed on equal work (her 'comparator'). Likewise, a man can claim equal pension benefits with a woman employed on equal work. The claim is made against the trustees or managers of the scheme, rather than against the employer. The employer is entitled, however, to appear before and to address the employment tribunal that hears the claim, and is obliged to provide the funds to secure the claimant's rights.
If they are to resist a claim for equal treatment, the trustees or managers must be able to show that the difference in pension benefits between the claimant and the comparator is genuinely due to some material factor other than the difference in their sex. A factor that directly or indirectly discriminates on the grounds of sex will not suffice to establish a defence. For example, the trustees of the scheme might argue that a particular employee is not eligible for membership because she works less than 12 hours a week. If that minimum hours' requirement excludes a considerably larger proportion of the women in the workforce than of the men, the trustees will need to show that it meets some objective business need.
A tribunal would not accept a desire to save money as justification. However, it might be possible to justify excluding those working only a small number of hours a week, on the ground that the cost of administering those employees' membership of the scheme would outweigh the benefits they would receive from it.
It is also worth bearing in mind that part-timers of both sexes are protected from pensions discrimination by the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000. These require an employer to treat a part-timer in the same way as a comparable full-timer, unless the employer can justify on objective grounds why the two should be treated differently. The Regulations are discussed in more detail elsewhere in this Guide (part-time workers regulations ).
The legislation on sexual orientation discrimination allows employers to restrict survivors' benefits to married partners, provided they also extend them to civil partners (that is, same-sex couples who have officially registered as civil partners). On the other hand, if a scheme gives survivors’ benefits to members’ partners, whether or not they are married/civil partners, it must ensure that same-sex partners are covered.
The Disability Discrimination Act 1995 makes it unlawful for employers of 15 or more people to discriminate against disabled employees or job applicants for a reason relating to their disability, unless there is objective justification for doing so. In addition, the Act places employers under a duty to consider whether they can make any reasonable adjustments to accommodate disabled employees and job applicants. The Act is considered in more detail elsewhere in this Guide ( Equal opportunities ).
Trustees and managers of an occupational pension scheme are bound by the same principles of non-discrimination as employers, in relation to the terms on which people become members, and the way in which members are treated. Any unjustified discrimination by them would be treated as a breach of the scheme's rules, and any disabled person who was affected would be able to seek redress through the scheme's dispute resolution mechanisms, or could complain to OPAS (the Pensions Advisory Service) or the Pensions Ombudsman (resolving disputes).
Regulations made under the Disability Discrimination Act make it lawful in certain circumstances to exclude disabled employees from a pension scheme, or to allow them access to the scheme only on certain conditions, or to reduce the amount of pension benefits that they receive. This applies only where an employee's disability and prognosis mean that the cost of providing benefits for him or her is likely to be substantially greater than it would be for a comparable person without that disability.
As the Code of Practice issued under the disability discrimination legislation points out, discrimination against a disabled person in relation to pension benefits may be possible only when the employee is first considered for admission to the scheme. Once a member, the disabled person is covered by the scheme rules, and can be discriminated against only if the terms of the scheme allow for this. The Code of Practice also stresses the need for employers to satisfy themselves, if necessary with actuarial advice and medical evidence, that it would be likely to be substantially more expensive to provide benefits for the particular individual they are considering excluding from the scheme or from certain benefits. It is not enough to make a broad assumption that disabled people generally, or people with a particular impairment or illness, will necessarily involve greater cost.
Even if a disabled person is excluded from a pension benefit, or is not entitled to receive the same amount of benefit as other employees, the employer can lawfully require him or her to pay the same rate of contribution as other employees.
An employer's usual duty to consider reasonable adjustments does not apply in relation to any benefit under an occupational pension scheme. This means, for example, that where an employee works fewer hours for a reason relating to his or her disability, and so is paid less, it is lawful for his or her pension to be based on that lower pay rate.
Under the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002, employers must ensure that they do not treat fixed-term employees any less favourably than comparable permanent employees unless they have objective justification for doing so. (The Regulations are explained in more detail elsewhere (fixed-term contracts).) The Government guidance on the Regulations ( Contracts of employment links ) suggests, for example, that an employer may be justified in excluding a fixed-term employee from its pension scheme if the contract is shorter than the vesting period for the pension scheme and admitting the employee to the scheme would be disproportionately expensive in comparison with the benefit that would be provided to the employee. If the employer was justified in excluding the fixed-term employee from the scheme, it would not need to provide an alternative, such as contributions to a personal pension, unless this option was offered to comparable permanent employees.
Another way of justifying the exclusion of fixed-term employees from a contractual benefit is to show that their package of benefits, taken as a whole, is no less favourable than that of comparable permanent employees. So, for example, it might be justifiable to exclude fixed-term employees from an occupational pension scheme if their pay was higher than that of permanent employees by an amount equal to the contribution the employer made to the pension scheme on the permanent employees' behalf.
It should be noted, however, that an employer that can justify excluding a fixed-term employee from its occupational pension scheme may still be obliged to offer the employee access to a stakeholder pension.