UK: Equalisation Of Normal Retirement Dates – A Done Deal?

Last Updated: 17 October 2011
Article by Michael Jones

Michael M Jones of Charles Russell LLP discusses the need for employers with defined benefit pension arrangements to double check their equalisation compliance position.

On 17 May 1990 the European Court issued the Barber decision. It held that equal pay as between males and females applied also to occupational pension schemes. Further European cases between 1993 and 1994 clarified matters.

Barber is still relevant today because employers with defined benefit pension schemes are finding to their cost that their previous attempt to equalise may not be valid.

The Barber decision impacted on pension schemes that had sex-based normal retirement dates (NRDs), such as 65 for males and 60 for females. As a result of the decision, from 17 May 1990 until the scheme actually equalised its NRD (the ' Barber window'), the disadvantaged sex (usually the male) was to have the benefit of the lower NRD (i.e. 60).

In practical terms this meant that scheme rules would need to allow males and females to retire without needing consent from age 60. It also meant that any actuarial reduction on early retirement had to be based on the lower NRD of 60 for benefits accrued during the Barber window.

Most pension schemes sought to close their own Barber window between 1993 and 1995. This was often done via an announcement with an amending deed being produced at a subsequent date.

The issue is still a live one today because for many pension schemes issuing announcements alone was not a valid way to amend the scheme. Such schemes required deeds, written resolutions or other formal procedures to validly amend their terms. Therefore, it was not until the formal amendment procedure was complied with, often years later, that the change took effect.

While many pension schemes sought to get around this time gap by making retrospective amendments, recent case law has clarified that benefits granted by European law cannot be amended retrospectively. This means that retrospective equalisation amendments are likely to only be valid from the date of agreement, not from any earlier date specified.

This can result in employers finding that they have a hidden material liability sitting in their pension scheme which hits their balance sheet. Recent cases have inspired some employers to open the bonnet of their pension scheme to look inside. Other employers are looking to de-risk their schemes and move the assets into buy-in contracts. This benefit review procedure can lead to the discovery of a problem with the equalisation process.

In most cases employers with active or historical defined benefit pension arrangements should check their equalisation compliance position. In many instances they will find their position is compliant. However, this is not necessarily the case, and the position may at least require further investigation. The problem will not go away and, in extreme cases, where the Barber window has never validly been closed, inattention will ultimately only increase the employer's liability. In this case, forewarned is forearmed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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