The Court of Justice of the European Communities has handed down its judgment in the case of HK Danmark v Experian A/S C-476/11. The question raised by the case was whether, in view of EU anti-discrimination law, it is lawful for employers to offer their employees defined contribution (DC) pension schemes in which the contribution rates differ according to the age of the employee.

The Court held that this practice was in principle capable of being lawful, which is helpful for employers. However, the legality of any particular set of age-variant contribution rates remains open to question on a case-by-case basis. More broadly, it is still not entirely certain whether UK law is fully compliant with the relevant EU Directive.


It is quite common for DC pension schemes in the UK to use different contribution rates according to the age of the member, with older members receiving progressively higher contributions than younger members. The same practice appears to be prevalent in Denmark, where the case originated. The EU’s Equal Treatment Directive, which was adopted in 2000, outlawed age discrimination in employment, including in work-based pension schemes. There were, however, two exceptions to this. First, there was a general exemption. Member states were given the ability to permit age discrimination in cases where doing so was “objectively and reasonably justified” by virtue of being an “appropriate and necessary” means of achieving a “legitimate aim”. Second, there was a specific exemption allowing the use of age criteria in respect of “entitlement to retirement or invalidity benefits”. The Directive was duly implemented into Danish law.

The case

The complainant, Ms Kristensen, had been allotted by her employer, Experian, to a pension scheme which offered contribution rates which varied according to age. She joined at the age of 29, at which point she was entitled to total contributions of 6% of salary (3% payable by the employer). If she had been aged over 45, by contrast, she would have been entitled to contributions of 15% (10% from the employer). It was argued that this was justified by the specific exemption in the Equal Treatment Directive, as incorporated into Danish law.

The court did not accept this argument. It found that the specific exemption in the Directive was to be interpreted strictly. On the face of it, the wording of the exemption allowed discrimination only in respect of “entitlement to retirement or invalidity benefits”, and this did not cover the specific matter of contribution rates. The court also appeared to take the view that DC pension contributions, being an “immediate cash benefit” which is paid into a personal account for the employee, constitute part of the employee’s general pay rather than being specifically a pension benefit. (The court did not elaborate on this point, but a contrast might be drawn with an employee’s rights under a defined benefit pension scheme, which presumably could not be labelled as a “cash benefit” in the same way.)

So much for the specific exemption for pension schemes. Could the Danish employer’s practice be justified instead on the basis of the general exemption, which allows for age discrimination where it constitutes an “appropriate and necessary” means of achieving a legitimate aim? It was argued that older workers may need a higher contribution rate because they have less time to save for retirement. Conversely, lower rates for younger employees make it possible to include them in the pension scheme without taking a large chunk out of their wages.

The court accepted this argument in principle and held that the general exemption could apply in such cases. However, it noted that the national courts (in this case, the Danish court) would need to determine on a case-by-case basis whether the facts of any particular case came within the general exemption.  

Clyde & Co comment

This ruling will come as a relief to the UK pensions industry. If the European Court had found that age-related contribution rates were unlawful in principle, many employers and pension schemes would have needed to carry out a fundamental review of their current practices.

However, the ruling does not give carte blanche to use age-varying contribution rates. There also remains a question as to whether the UK Government has implemented the Equal Treatment Directive correctly.

The UK Government has adopted a set of regulations which set out certain exemptions in which age discrimination is permitted in pension provision. However, these exemptions will only be valid if they pass muster when tested against the criterion of being an “appropriate and necessary” means of achieving a “legitimate aim”. With regard to age differences in contributions, the regulations allow such differences in order “to equalise… [or] to make more nearly equal the amount of the... benefit... to which workers of different ages who are otherwise in a comparable situation will become entitled”. It remains open to question whether this UK exemption is sufficiently tightly worded when tested against the terms of the general exemption in the Directive.

In any event, employers would be well advised to ensure that they can explain to the court, if they are challenged, why they have chosen to use particular agerelated contribution rates. This is likely to be more difficult where the variations in the rates are dramatic and have no obvious justification. For example, an employer which used a combined rate of 5% for 20-year-olds which suddenly became 20% when employees turned 40 would need to think carefully whether such rates were justifiable.