Is there a growing awareness of age discrimination law, and how could it change pensions going forward? Two lawyers share their views. 

 

Age discrimination cases have come to the fore in pensions through the Sargeant/McCloud ruling that the government’s transition protections in public service pensions were unlawful, and the Hughes case on the age-based Pension Protection Fund cap, which might yet see a sequel as the government is considering its options, having twice been told that the cap is unlawful.  

 

At the same time, there has been a 30% rise in ageism claims at work tribunals, the Guardian reported earlier this year, as the pandemic is found to exacerbate age discrimination at work; older workers are more likely to be furloughed and, once the furlough scheme ends completely in September, are at higher risk of redundancy. Analysis by the Resolution Foundation found that around half of workers on furlough in May this year were aged 45 and over, up from 38% during the first lockdown. 

 
So is age discrimination litigation something that we will see more of in future?  

 

 

Age discrimination law is relatively new, having been introduced in 2006, but the McCloud ruling has raised awareness, says partner at law firm Gowling WLG, Richard Lee. 

 

Similar arrangements to those that were found to be unlawful in McCloud – special transition protections for older workers – were also sometimes used in the private sector when an employer closed down a defined benefit scheme. “It was quite common for transition protections to be put in place, particularly for those near retirement... the argument being that they have less time to make up for lost benefits," Lee explains.

 

Since McCloud, it has become much less common for private sector firms to agree to such protections, he notes. Where unions are involved, negotiations now tend to focus on a one-off compensation package that is not age or service-focused. “McCloud has straightened the balance on intergenerational issues for DB,” he says. 

 

In defined contribution, there is a potential question about age bands for employer contributions which could be seen as discriminatory. Lee says there are limited exemptions for employers trying to provide broadly equal benefits – again recognising that older workers have less time to save until retirement – but there are nuances. 

“If there is a 10% contribution difference at age 45, there is a question of proportionality... Within a lot of DC there are contribution structures that in my view could be challenged,” he says. 

 

 

And then there is the bigger question of age discrimination between DB and DC, with employers providing DB to some and DC to other – often younger – employees. 

At the moment, the likelihood of a legal challenge is limited, again because there are specific exemptions for employers. However, “that doesn’t mean that potentially the actual exemption itself could be challenged as unlawful,” Lee says. 

 

“We haven’t got anywhere close to a whole generation retiring on DC benefits,” he notes, and DC savings are inadequate according to the Pensions and Lifetime Savings Association. As people realise they will be poorer than they thought, they could look to previous employers and start to challenge the unequal distribution of funds between DB and DC.

 

“There could well be a wave of challenge when the first generation start to realise they simply haven’t got enough to live on,” says Lee. 

 

The benefit itself is more generous in DB, but so is the input; he notes that on the contribution side, there are “examples where 10% [of staff] are in the DB scheme and use up 90% of the HR and people budget”.  

 

Claims for compensation could however have further negative consequences. Lee mentions the successful equal pay claims by female staff against Birmingham City Council in 2012, which amounts to at least £757m of back payments, in turn led to redundancies and service cuts. 

 

In other areas of law, age has already become an issue, for example in permanent health insurance and income protection claims. This is because insurance benefits last until age 65, while the state pension age has been increasing beyond this – leaving a gap between insurance and pension income, and questions of whether anyone is responsible for covering it, and if so, whether that is the employer or the insurer. 

 

 

With DB closures, in recent times employers are more likely to use the argument of wanting to be fair across the workforce, says Sackers partner Lucy Dunbar. “There is a trend for employers to be more vocal about their desire for parity,” she notes. 

 

She attributes this to a general push for greater equality and fairness in society, expressed in protest movements among others, but admits that the fact that finance directors are less likely to have DB provision now could also play a part in how they view the DB scheme. 

 

While Dunbar agrees there are millions who are undersaving, she says bringing a case for discrimination on the grounds that DC benefits are lower than DB would be difficult, as these cases are “not straightforward”, particularly in pensions. 

 

Looking at how much money goes into DB versus DC, for example, could stumble at the fact that employer contributions are a function of the actuarial process, she notes, and do not necessarily equate to higher benefits. 

 

While, “if you were to look at it at output... with DC you will never know how much that is going to be until you retire”, and with the pension freedoms there would be a further question on what to compare with. 

 

“Even if you could establish that for example younger people were treated differently in an unlawful way, have you got the right person to compare yourself to?” she adds, explaining that the law requires there to be a ‘comparator’ - a person who is broadly in the same circumstances save for the pension provision – something that could be difficult to find with age differences.