Around one year after the introduction of the age discrimination legislation the first Tribunal case considering how the new law applies to pensions has been decided. While the case turned on its specific facts, a number of more general conclusions can be drawn, particularly as regards the indicators the Tribunals will look for when deciding whether there is objective justification for actions which would otherwise be unlawful. It is not yet clear whether the ruling will be appealed
The claimant was a partner in a London law firm which provided pensions to retiring partners which were paid out of future income. It was a contractual unfunded arrangement, not a conventional pension scheme set up under trust. The firm effectively restructured the arrangement with effect from May 2006. This affected the way in which benefits were calculated for past as well as future service. The rationale for the change was to make the arrangements more sustainable and to preserve fairness between the generations of partners. If allowed to continue, the old arrangement would be funded disproportionately by younger partners who would themselves receive less by way of benefit when they came to retire, due to specific features of the arrangement. The firm felt that its long term success required fairness as between different generations of partners. It was not clear whether concerns relating to age discrimination also played a part in the decision to change the arrangement.
Transitional provisions were adopted to enable partners approaching retirement to retire immediately and take advantage of the more favourable provisions of the old arrangement. Where a partner was aged under 55 on 30 April 2006, when the arrangement was restructured, the amount of this immediate pension would be reduced.
The claimant was aged 54 on 30 April 2006. He elected to retire under the transitional arrangements and brought a claim that he was being discriminated against because he had to retire immediately in order to benefit from the terms of the old arrangement and also because he thereby suffered a reduction to his pension which did not apply to partners who were aged 55 on 30 April 2006. Also, he complained that partners aged 50 to 53 who retired under the transitional provisions were able to defer taking their pensions which, if he were allowed to do, would enable him to take his benefit at age 55 without reduction.
There were 18 issues which were referred to the Tribunal. The findings of most general application were:
- Although the coming into force of the age discrimination legislation in so far as it related to pensions was postponed until 1 December 2006, pensions provided under partnership agreements were covered by the legislation from 1 October 2006 when the main provisions came into force. This may well be a DWP oversight.
- As the age of a partner on 30 April 2006 was a factor in determining whether a reduction would apply to his pension under the transitional arrangements, the claimant had received less favourable treatment as compared with older partners who had reached age 55. Such treatment, unless justified, was directly discriminatory.
- The fact that partners aged 50 to 53 could defer taking their pensions was not relevant to the claimant’s case because their circumstances were not sufficiently similar – the younger partners could only defer for a limited period and their pensions would still suffer a reduction that was at least as great as that suffered by the claimant.
- When considering a defence of objective justification, the Tribunal will not focus solely on the treatment in question (such as the application of the discount on retirement before age 55), but will also consider the wider context in which the treatment occurs.
- The firm had “comfortably” shown that the action it had taken was a proportionate means of achieving a legitimate aim and therefore passed the test for objective justification. The following factors were identified as of particular importance:
(1) The aim of addressing the increasing disadvantage suffered by younger age groups under the old arrangement was a legitimate aim.
(2) Transitional provisions maintaining the status quo for those most proximately affected can be acceptable.
(3) Maintaining the status quo does not absolve the employer from considering other steps.
(4) Improving the provisions of the old arrangement under the transitional arrangements (ie allowing retirement at age 54 without reduction, as the claimant argued for) would, in this case, have been unfair and perverse.
(5) Even after lengthy consultation, no less discriminatory alternative had been put forward.
The importance of this case is that it shows how the Tribunals may look at objective justification defences and how employers need to take care over the process for introducing changes, be clear about the reasons for the decisions they take and ensure these reasons are adequately recorded. In this case, the firm was able to show that it had undertaken a lengthy process in both developing its proposals and consulting with partners. Various alternatives had been considered and the proposals had evolved to meet objections. No alternative had been suggested which would be free of an element of discrimination. Far from being capricious, there was a clear rationale underpinning the decisions taken.
The Tribunal confirmed, as would be expected, that employers will have to consider the effect on employees of different age groups whenever a change to a pension scheme or an employment policy is proposed.
The Tribunal is to be congratulated in taking a sensible and pragmatic line over the objective justification test. Although the decision is not binding on other Tribunals and may, indeed, be appealed, it is to be hoped that a similar approach will be adopted in future cases.