On 26 September, in the case of HK Danmark v Experian A/S  EUECJ C-476/11the CJEU ruled that an age-related contribution scale in a money purchase scheme could be lawful if the national court finds the age discrimination appropriate and necessary to achieve a legitimate aim.
The employee in question worked for Experian in Denmark. She became a member of Experian’s occupational DC pension scheme (the Scheme), which varied pension contributions according to the following age-scale:
- employees under 35 years of age: employee 3 per cent, employer per cent; Employees between the ages of 35 and 44 years: employee 4 per cent, employer 8 per cent; and
- employees over the age of 45: employee 5 per cent, employer 10 per cent;
The employee resigned and sued the Danish court for the pension contributions she would have received had she been in the highest age bracket, claiming that receipt of a lower payment due to her age constituted age discrimination.
The Danish court referred to the ECJ whether the alleged age discrimination was lawful under Article 6(1) or Article 6(2) of the 2000 equal treatment directive (the Framework Directive). The CJEU ruled as follows:
- the difference in treatment on grounds of age could not be justified by Article 6(2) of the Framework Directive as this provision applied only to social security schemes that set an age ‘for admission and entitlement to retirement or invalidity benefits’ and used ‘age criteria in actuarial calculations’. Experian’s employees automatically joined the Scheme after nine months of employment with the company (regardless of their age) and varying contributions according to age could not be assimilated with making actuarial calculations. Through a strict interpretation of Article 6(2), this exemption was held not to apply; and
however, contributions increasing with age could be lawful under Article 6(1) of the Framework Directive if the national court could establish that the measure was ‘objectively and reasonably justified by a legitimate aim’. The Could held that the following reasons given for contributions increasing with age could be regarded as legitimate as they took into account the interests of all employees:
- higher contributions for older workers helped them to build up greater retirement savings ‘of a reasonable amount’ more quickly;
- the cost of covering the risks of death, incapacity and serious illness increases with age, necessitating higher contributions; and
- lower contributions for younger workers allowed them to have a larger proportion of their income at their disposal.
The Court held that it is for the Danish national court to decide whether the age-related increases achieve those aims ‘in a consistent and systematic manner’ and do not go beyond what is necessary to achieve them. In particular, the national court should consider whether the detriment to the employee from the differential treatment is outweighed by the benefits of receiving employer contributions (albeit a lower amount) and having a lower financial burden to meet.
Employers and pension schemes may be relieved that money purchase schemes contributions determined by an age-scale can be objectively justified. However it is worth noting that:
- the aims approved by the CJEU are rather difficult to understand (for example why is it a legitimate aim for younger workers to have a larger proportion of their income at their disposal); and
- the CJEU did not consider whether it would be a legitimate aim to equalise or ‘make more nearly equal’ the resulting benefit, which is the basis of the exemption contained in the UK regulations that implemented the Framework Directive.
A potential cause of concern is the CJEU’s narrow interpretation of Article 6(2). UK age discrimination legislation contains several exemptions for age-related terms in pension schemes, which the government may need to review in light of this decision to ensure that they all comfortably fall within the scope of Article 6(2).