The pensions aspects of the Employment Equality (Age) Regulation s 2006 (SI 1996/1031) (the “Age Regulations”) came into force on 1 December 2006. In addition, the final version of the accompanying DWP/DTI Guidance has now been published and is available on the DTI website here. Overall, the amendments made to the earlier versions of the Age Regulations are helpful and have gone some way towards addressing many of the pension industry’s concerns. However, the so-called “compliance window”, mooted by the DWP shortly before the Age Regulations were due to come into force and which would have given schemes extra time to comply with the provisions, has not been adopted. This guide draws together our earlier briefings on this topic and examines the impact of the Age Regulations on occupational and personal pension schemes in the light of the final-form legislation and guidance


The Age Regulations outlaw age discrimination in the context of occupational pension schemes (and in relation to employer contributions to personal pension schemes) unless the discrimination:

  • falls within one of a series of specific exemptions listed in Schedule 2 to the Age Regulations; or 
  • is “objectively justified”

Objective justification is defined in the Age Regulations to mean that the provision or practice at issue pursues a legitimate aim and is a proportionate means of achieving that aim. As with any new legal framework, there is debate as to how this defence will be applied by the courts in practice.

Broadly, the exemptions in the Age Regulations allow schemes to operate largely as they did pre-1 December 2006. However, there is some uncertainty as to how certain rules and practices will be affected by the new legislation (see section on “common issues” below).

Nature of discrimination

In essence, a claimant must show that he or she has been treated worse than another worker (a “comparator”), whose circumstances (other than age) are the same, or “not materially different” from his or her own. An example of materially different circumstances would be where different benefits are provided for different categories of employees, such as senior executives. It is not just older employees who may bring a claim; it is also possible for younger employees to be the victims of unlawful age discrimination.

Discrimination can be direct or indirect: 

direct discrimination occurs where the employer or pension scheme trustees treat a worker less favourably than other workers because of age 

  • indirect discrimination occurs where a rule, practice, action or decision which is apparently age-neutral in fact disadvantages workers of a particular age
  • Both direct and indirect discrimination will be lawful if it can be objectively justified

Bringing a claim

Claims cannot be brought under the Age Regulations in respect of service before 1 December 2006.

Employees and pensioners may seek redress through an Employment Tribunal. The claim can be against an employer or the trustees of the pension scheme.

Complaints must normally be brought within three months of the act complained about ceasing to have effect.

If successful, a Tribunal may make: 

  • a declaration of the rights of each party 
  • a recommendation of how the trustees or employer should tackle the discrimination 
  • an order forcing the individual to be admitted to the scheme 
  • an order allowing the member to continue his or her membership of the scheme without discrimination 
  • a compensation order but only in relation to noncompliance with an earlier order or in respect of injury to the complainant’s feelings

Employees may also seek redress by invoking the scheme's internal disputes resolution procedure or by making a complaint to the Pensions Ombudsman.

The effect of the non-discrimination rule The Age Regulations insert an overriding nondiscrimination rule into the trust deed and rules of every occupational pension scheme. The effect of this rule is that the trustees must administer the scheme so as not to infringe the age discrimination requirements. Any rights accrued in respect of service prior to 1 December 2006 are excluded.

The Age Regulations also give trustees power in certain circumstances to amend a scheme's rules to ensure that they comply with the requirements (although they must obtain the employer's consent where this is a requirement under the rules).

Where discriminatory rules or practices have not yet been addressed (and are not capable of objective justification), there is a risk that benefits will have to be “levelled-up” if there is a successful claim.

The exemptions

Discrimination will be lawful where it falls within one of the specific exemptions in the Age Regulations.

These exemptions, which were revised and extended by amending regulations, cover most of the common pension scheme rules or practices.

Where a discriminatory provision or practice is not covered by an exemption, it does not mean that it is necessarily unlawful. Rather it means that it needs to be objectively justified. If it cannot be objectively justified, the employer and/ or the trustees will need to consider what action to take to address it.

The main exemptions are set out in the appendix to this briefing. They cover provisions that might otherwise be considered age discriminatory (either directly or indirectly) such as: 

  • setting a minimum or maximum admission age 
  • providing for benefits to be payable from a certain minimum age 
  • closing a scheme, or section of a scheme, to new joiners 
  • applying actuarial factors in the calculation of benefits 
  • calculating benefits by reference to service completed or by reference to a “target pension” (eg, two-thirds of final salary) 
  • having age-related contributions to defined contribution schemes, provided the aim is to produce benefits that are “more nearly equal” than would be the case if equal contributions were paid at all ages 
  • setting a limit on pensionable earnings or on the number of years over which benefits can accrue.

Status of exemptions

As there is no specific authority for a number of the exemptions in the EU Directive from which the Age Regulations derive, there is some doubt as to the legal basis for the approach taken in the Regulations. If the validity of an exemption was to be challenged, and the challenge upheld by the European Court of Justice, there is a risk it could lead to the Regulations being changed, possibly with retrospective effect.

Objective justification

As noted in the “overview” section, this is defined in the Age Regulations to mean that the provision or practice at issue pursues a legitimate aim and is a proportionate means of achieving that aim.

Assessing the likely ambit of the objective justification defence is speculative at this stage, in the absence of Tribunal cases. It is likely that legitimate aims for the purpose of the test will include business needs, efficiency, reducing staff turnover, encouraging loyalty, recognising experience or providing promotion opportunities. However, the fact that ending a particular discriminatory practice would involve substantial cost to the scheme or employer is unlikely to satisfy the objective justification test on its own; although it is possible that cost could constitute objective justification in combination with other factors.

To be a proportionate means of achieving an aim, there must be a balance between the discriminatory effect of a measure and the importance of the legitimate aim. Furthermore, a measure will not be proportionate if a less discriminatory alternative exists.

It is also important for employers and trustees who wish to rely on the objective justification defence to be able to provide evidence to support their contention; for example, a paper trail showing the reasons for the measure or practice at issue (preferably contemporaneous with the decision to institute the practice).

Relationship with employment terms

Employers can still designate a contractual retirement date for their employees. However, compelling employees to retire at an age earlier than 65 will be age discrimination, unless it can be objectively justified. In addition, employers must consider requests from employees to work beyond their contractual retirement date.

Where these requests are granted, it is necessary to consider what retirement and death benefits should be provided in respect of these employees

Some common issues:

What to provide for employees in service after normal pension age?

Where a member of a pension scheme remains in service beyond the scheme's normal pension age, it is likely to be discriminatory not to allow the continued accrual of benefits under the scheme. This will be the case regardless of whether the employer offers the employee membership of an alternative arrangement (such as a group personal pension plan). This does not mean that employees cannot be offered the option of leaving the scheme and joining an alternative arrangement; just that the employee cannot be forced out.

Schemes will also usually need to continue lump sum death benefit cover, member’s contributions and survivor's pensions for members in service after normal pension age. Where survivor's pensions are based on prospective service to normal pension age, it will need to be considered whether the basis of calculation should be changed to take account of service after normal pension age.

There is a specific exemption for late retirement actuarial uplift of the benefits for members who remain in service after a particular age. This is referred to in the Regulations as the “late retirement pivot age”. Usually, this will correspond to a scheme's normal pension age. This means that schemes may continue to offer members the option of either continuing accrual of benefits or an actuarial uplift of their accrued benefits at normal pension age (with no further accrual and no members' contributions).

Where a scheme allows members who defer their retirement after normal pension age the option of taking their benefits while remaining in service, it will need to be considered whether the same option should be extended to employees in service under normal pension age.

What benefits may be provided on early retirement?

Schemes may operate an “early retirement pivot age”, which is defined in the Age Regulations as the earliest age at which members can take unreduced benefits without employer or trustee consent. In some cases, the “early retirement pivot age” will correspond to the scheme’s normal pension age. However, in other cases it may be earlier. Note that a scheme can have different early retirement pivot ages for different categories of member (allowing, for example, members of an executive section to have a normal pension age which is earlier than that applicable to members of other sections of a scheme).

Schemes may also set a minimum early retirement age below which benefits are not payable. The early retirement can be as of right or subject to employer/trustee consent. Early retirement pensions for members who are retiring before a scheme's early retirement pivot age must be actuarially reduced (except for those who were existing or prospective members as at 1 December 2006), unless the entitlement arises on redundancy or ill health. The reduction must be “actuarial” and so there may be an issue if the reduction factor has not been advised by an actuary (for example if it is fixed by scheme rules).

For members who join after 1 December 2006, it will no longer be possible, for example, to provide an unreduced early retirement pension only with the employer’s or trustees’ consent (unless it can be objectively justified). Where retirement is on grounds of redundancy or ill health, or members or prospective members as at 1 December 2006 have an entitlement to a enhanced pension, the enhancement may be calculated by reference to all or part of member’s actual prospective service to normal pension age, or a fixed number of years of prospective service, or by making a smaller actuarial reduction (or no actuarial reduction at all).

The protection for members as at 1 December 2006 can be preserved on a bulk transfer or a TUPE transfer.

“Redundancy” is defined by reference to the Employment Rights Act 2006. Dismissals analogous to redundancy but not within the statutory definition will not be covered by the exemption.

The exemptions do not cover the so-called “rule of 85” or “golden numbers” rules, where an entitlement to an enhanced early retirement pension arises if certain age and service conditions are fulfilled. Therefore, unless the particular provision can be objectively justified (which is likely to be difficult in the light of the recent Unison case), it will be necessary to remove it for post-1 December 2006 service and to consider whether to adopt transitional provisions for pre-1 December 2006 service.

Are schemes required to offer flexible retirement?

The original draft DTI guidance suggested that it could be indirectly age discriminatory for schemes not to offer members flexible retirement, ie, the option of taking their pension before retiring from service. The draft guidance also suggested that, where flexible retirement was allowed, it could be discriminatory to prevent a member who chose this option from continuing to accrue pension for future service.

It is questionable whether this would amount to age discrimination under the legislation. The final version of the DWP/DTI guidance does not deal with the issue. However, the DWP has confirmed that they intend to publish further guidance on flexible retirement and age discrimination in the near future.

There is a higher risk of a successful claim if a scheme currently allows flexible retirement in some cases but not others. For example, if a scheme allows members who remain in service after normal pension age to start receiving their pension before actual retirement, this potentially discriminates against members who are below normal pension age.

What is the effect of having different sections within a scheme?

There is an exemption that allows different benefits to be provided for members who join before/after particular dates or as a result of a TUPE transfer or a bulk transfer (eg, as a result of a scheme merger). It will therefore be possible for schemes to have one or more closed “sections”, alongside an open section for new joiners and/or other open sections for employees who are not comparators of members of the closed section(s).

The operation of parallel open sections (where members of the different sections are comparators) may be indirectly discriminatory, where the age profiles of the members in the different sections is such that older (or younger) workers are treated less favourably, unless the less favourable treatment is objectively justifiable.

“Nursery” sections (eg, where defined contribution benefits are provided up to a certain age before switching to defined benefits) will be directly discriminatory, unless they can be objectively justified. The position is different, however, if membership of a separate defined contribution scheme is offered up to the age at which employees become eligible for a defined benefit scheme. The late entry age for the defined benefit scheme will be within the exemption that allows schemes to set a minimum age for admission.

Can schemes provide benefits based on providing a target pension (eg, two-thirds of final salary) for all members?

The amended version of the Age Regulations contains an exemption that covers differences in accrual rates where the differences are due to the aim of providing a target pension of the same fraction of pensionable pay at normal pension age for all members in a comparable position. The exemption also applies where the target pension is subject to a maximum amount or completion of a minimum period of service. This is a helpful change but there are still some “grey areas”. For example, the exemption does not cover arrangements where the aim is to provide a targeted pension at an age other than normal pension age. Also, it is not clear that the exemption covers schemes that provide a target pension at normal pension age (eg, twothirds salary), but subject to a maximum accrual rate (eg, one-thirtieth of salary for each year of service).

Age-related contributions under defined contribution arrangements

Age related contributions are exempted, provided that the aim is to produce benefits that are equal “or more nearly equal” for members of different ages who are otherwise in a comparable position.

The first draft of the DTI Guidance suggested that this aim would be more easily demonstrated with a high number of contribution bands. The examples indicated that up to ten age bands might be required to be safe. The revised DWP/DTI Guidance takes a different line and suggests that fewer bands (maybe as few as three) might be compliant. There seems no reason in principle why even two bands should not be consistent with the aim being to secure benefits that are “more nearly equal”.