The Employment Appeal Tribunal (EAT) has recently considered two age discrimination cases concerning the introduction of transitional provisions as part of significant reforms made to public sector pension schemes. These cases consider two schemes in particular, the Judicial Pension Scheme (JPS) and the Firefighters’ Pension Scheme (FPS). The decisions in these cases (Ministry of Justice -v- McCloud and Sargeant -v- London Fire and Emergency Planning Authority) will be of interest to employers and trustees, who should note in particular the EAT’s approach to determining the validity of an objective justification defence in discrimination claims.

Background

The cases concerned claims brought by judges and firefighters in respect of changes made to the JPS and FPS respectively in 2015. These changes followed the Hutton Report published in 2011, in which proposals were outlined for reform of public sector pension schemes in order to make them more sustainable. The report resulted in the enactment of the Public Sector Pensions Act 2013, and subsequently the introduction of new career average pension schemes for public sector workers including for judges and firefighters (‘new JPS’ and ‘new FPS’).

In accordance with transitional provisions implemented by the Government, judges and firefighters who were within 10 years of normal pension age on 1 April 2012 were entitled to remain members of the JPS and FPS respectively, rather than transferring to the new scheme which generally offered less valuable benefits. Tapered protection was in operation for judges and firefighters who were between 10 and 14 years of normal pension age on that date.

Claims

Claims of unlawful age discrimination were brought by members of the JPS and FPS who did not benefit from protection under the transitional provisions and who therefore moved directly over to the new JPS and new FPS. The Government accepted that these provisions resulted in the claimants receiving less favourable treatment due to age, however it contended that they were ‘objectively justified’, i.e. that the transitional provisions were a proportionate means of achieving a legitimate aim.

Ministry of Justice -v- McCloud The Employment Tribunal (ET) initially found that the Government had failed to demonstrate pursuance of a legitimate aim, since members closest to retirement would in fact be the least adversely affected by the pension reforms. Further, the ET held that the transitional provisions would not have been a proportionate means of achieving the Government’s aim had it been deemed to be legitimate, given the severity of the impact on judges who were not granted protection. The ET applied the same reasoning in respect of claims of indirect race and sex discrimination and equal pay.

On appeal, the EAT found that the ET had failed to take into account the ‘complex of moral and political judgments’ involved when considering whether the Government had established a legitimate aim. However, the EAT upheld the ET’s finding that the transitional provisions would not have been proportionate in any event. Consequently, the EAT ruled that the ET was correct in determining that the Government had failed to demonstrate that the transitional provisions constituted a proportionate means of achieving a legitimate aim. The appeal was therefore dismissed.

Sargeant -v- London Fire and Emergency Planning Authority The ET initially held that the Government had established legitimate aims, including the protection of those closest to normal pension age, avoidance of a ‘cliff edge’ between protected and unprotected groups through a tapering arrangement, and ensuring consistency across the public sector. In addition, the transitional provisions were found by the ET to be a proportionate means of achieving the Government’s aims; it was reasonably necessary to draw a line somewhere, and it was a social policy decision where that line should be drawn. This case was therefore at odds with the decision in McCloud. The race and sex discrimination claims were also dismissed on the basis that any race or sex disparities resulted entirely from age and were therefore completely unconnected to either race or sex.

The EAT upheld the ET’s ruling in respect of legitimate aims, but found that it had erred when determining whether the transitional provisions were a proportionate means of achieving those aims. In particular, the ET had applied an approach derived from European case law in determining that the provisions were within the Government’s ‘margin of discretion’ when it should instead have taken the domestic approach. This requires careful scrutiny of the means adopted in the context of the particular organisation, in order to assess whether they meet the objective and whether any other, less discriminatory measures could instead be applied. In addition, the EAT found that the ET had failed to consider the objective justification defence in respect of the race and sex discrimination claims. This issue, together with the proportionality question, were remitted back to the ET for consideration.

The EAT’s consistent decisions in these cases help to provide greater clarity on the interaction between transitional provisions and age discrimination, and offer useful guidance for employers and trustees who are considering making significant reforms to their pension schemes. However, the position may yet change again following the ET’s reconsideration of the ‘Sargeant’ case and a possible appeal by the Government of the ‘McCloud’ decision. It is highly likely that the Government will appeal the ‘McCloud’ decision (and the ‘Sargeant’ decision if it goes against them when it is remitted back to the ET) due to the far reaching financial consequences across all public sector schemes.