In our alert last week, we provided a refresher of the law in relation to age discrimination and pension schemes. Here, we follow up by providing our top tips for both employers and trustees to ensure compliance with the law and to minimise the risks and costs of an age discrimination claim.
1. Age Audit Your Scheme
If they haven't done so recently, you should carry out a review of the pension scheme rules and practices with your advisers, asking whether:
- There are any rules or practices which may be potentially age discriminatory;
- If the answer to 1 is yes, whether the provision falls within a statutory exemption;
Trustees and managers of pension schemes are responsible for complying with the age discrimination law in their own right. To the extent that trustees identify an issue within their own pension scheme, they should address this with the scheme employer as soon as possible.
2. Be Alert to Age Issues on Benefit Change Exercises
Age discrimination issues can crop up in unexpected places. Employers who are considering restructuring heir pension benefits (for example through a move from defined benefit to defined contribution, removing enhanced redundancy rights, or a pension increase exchange exercise) should be mindful of any potential age discrimination claims that may arise.
This may not always be obvious at the outset – indirect age discrimination issues, whereby a seemingly neutral proposal has a disproportionate impact on one particular age category over another - may feature at various points during these type of exercises.
Trustees who receive benefit restructuring proposals from employers should critically assess these from an age discrimination perspective, to ensure they are not being asked to administer the scheme in a way which would discriminate on age grounds, and that any objective justification reasons for pursuing a particular strategy have been properly considered.
3. Communicate Clearly
More often than not, age discrimination issues can arise because of a lack of understanding of what the workforce or pension scheme membership would like to see in terms of their benefits. Employers and trustees should avoid making assumptions based on age.
Communications to employees in relation to pension benefits should be clear and jargon free, so that in the event members do have an issue with a particular approach, those are flushed out early on. Members should be able to understand what benefits they are able to take, and when.
Trustees should have an open discussion with the scheme employer, and raise any age discrimination concerns. The trustees may need to seek some form of comfort or indemnification from the employer.
4. Don't Rely Blindly on Exemptions
Statutory exemptions apply to some age-related pension practices which mean they will not constitute age discrimination. However, these exemptions do not cover every age-related rule, and trustees and employers relying on them blindly, do so at their peril.
Trustees and employers should also be aware of wider changes in employment law which may require them to revisit an age audit (and other equality aspects of benefit provision).
A number of schemes, for example, have a normal pension age of 65 (being an age at which a member can draw their pension from the scheme, with the implication being that the member also stops building up benefits at this time).
Before the default retirement age was abolished this would have neatly sat alongside a company retirement age. Now that may no longer be the case, especially if employees are remaining in employment beyond the scheme's normal pension age. Trustees and employers should consider revisiting previous age discrimination reviews to ensure they are still fit for purpose. There is no exemption which would allow an employer to stop providing pension accrual once an employee has reached a certain age (e.g. 65).
For example, is there a clear policy on what pension and other benefits are offered to employees who remain in employment beyond what would have once been the employer's designated retirement age?
5. Examine Objective Justification Carefully
A practice or provision will not be age discriminatory if it can be shown to be objectively justified. Objective justification requires showing:
- that there is a legitimate aim being pursued and
- that the means of achieving that aim are proportionate.
Each case will be fact-specific. Both limbs need to be satisfied and costs alone will not be sufficient to justify keeping a potentially age discriminatory rule.
Employers should ensure that, where a provision is potentially age discriminatory and does not fall within a statutory exemption, they:
- amend the provision so that it is not discriminatory; or
- can objectively justify it.
Trustees should ensure that where an employer is saying a practice is objectively justified, they provide reasons behind that conclusion. Trustees should ensure they keep the necessary information for audit trail and good governance purposes.
6. Finally... Don't Forget About Insured Benefits
As well as considering pension benefits, employers and trustees should also remember insured benefits: the most likely being either ill-health or death benefits.
There is a statutory exemption that allows a cut-off age for insured benefits (see our previous alert for the details because the wording of this exemption is not straightforward) but employers should regularly review any insured benefits they provide to ensure that they either:
- fall clearly within the statutory exemption, or;
- can be objectively justified.
Failure to do this leaves employers and potentially trustees (where insurance is provided through a pension scheme or life assurance arrangement) open to challenge.