UK: Sex Discrimination and the Lower Earnings Limit

Last Updated: 6 September 2002

The High Court held earlier this year that a deduction of the lower earnings limit from pensionable salary did not amount to indirect sex discrimination, even if employees are excluded from membership.

A number of occupational pension schemes effectively exclude from membership employees earning below the lower earnings limit (LEL) by only including those earnings above the limit in the calculation of benefits. This practice is aimed at ensuring broad integration between scheme benefits and state benefits: it avoids employees getting both the basic state pension and a scheme pension in respect of the same earnings. However, those earning below the LEL will not get a state pension unless the employees make voluntary Class 3 contributions.

This case concerned Mrs Shillcock, who was employed as a dinner lady by Uppingham School. Under the Rules of the Uppingham School Retirement Benefits Scheme, pension benefits were calculated by reference to that part of the annual salary that exceeded the LEL. The benefits included a death in service lump sum of twice the member’s annual salary. Employees had to be invited to join the scheme by the school, and no employees who earned below the LEL were eligible to be invited.

Mrs Shillcock earned below the LEL and was not therefore eligible to join the Scheme. She complained to the Pensions Ombudsman that this amounted to sex discrimination on the basis that the exclusion effected more women than men. The Ombudsman upheld her complaint. The school and the trustees of the scheme appealed on a number of grounds, including the ground that there was no sex discrimination as the LEL deduction applied to all employees, regardless of sex.

The Judge considered whether Mrs Shillcock’s exclusion from the pension scheme amounted to a difference in treatment between the sexes, and if so, whether there was any objective justification for the difference. The Judge found that there was no difference in treatment between the sexes on the basis that: "subtracting the LEL from the earnings of every employee for the purpose of assessing the pensionable salary involves a consistent, not a discriminatory approach to all categories of employee". Although not part of the conclusions of the case, the Judge also commented that the aim of integrating benefits with the State scheme would have amounted to an objective justification if it had been concluded that there had been a difference in treatment.

The case is not being appealed.


The Shillcock case is now authority that the practice of deducting the LEL when calculating pensionable salary does not amount to sex discrimination. However, those schemes that exclude employees who earn below the LEL from membership could still be vulnerable to claims for sex discrimination if the exclusion results in the employee being denied access to the death in service benefit. This point was not considered in the Shillcock case as the Judge held that the Ombudsman did not have jurisdiction to hear complaints relating to death in service benefits. However, the Regulations governing the Ombudsman’s jurisdiction have now changed, and he does now have jurisdiction in this respect. If your scheme excludes employees earning below the LEL you may wish to review the position with regard to death in service benefits. These benefits can be provided either outside the scheme, or by allowing those affected to become members of the scheme for death benefits only.

Alan Pickering’s simplification review

The aim of the Pickering review was to suggest means of simplifying the legislation governing pension scheme administration in order to make it easier for employers to provide good quality pensions for their employees, for commercial providers to sell appropriate products and for individuals to accumulate pension benefits.

The key recommendations include:

  • A new Pensions Act consolidating all pensions legislation;
  • Where possible, replacing detailed regulation with guiding principles issued by a new regulator and professionals exercising their own judgement;
  • A simplified reference scheme test for contracted-out schemes which would:

– allow for the conversion of GMPs into reference scheme test rights;

– have no requirement to provide LPI increases;

– have no requirement to provide survivors’ pensions;

  • Allow employers freedom to choose benefit structure, for example remove compulsory LPI increases for pensions in payment and allowing employers to make membership of the scheme compulsory for employees;
  • Limited information to be provided automatically to members;
  • All schemes to have a minimum of one-third member-nominated trustees (apart from multi-employer centralised schemes);
  • Immediate vesting in all types of scheme (currently pension scheme rights have to vest within two years);
  • Replacing the requirements of Section 67 to allow employers, with trustee consent, to modify schemes where overall replacement of benefits are expected (but not guaranteed) to be equivalent in value.

The Government is expected to respond to Pickering’s proposals in a Green Paper this autumn. The Inland Revenue is also reviewing the taxation of pensions, with a view to simplification, and consultation on this is also expected in the autumn.

© Herbert Smith 2002

The content of this article does not constitute legal advice and should not be relied on as such. Specific advice should be sought about your specific circumstances.

For more information on this or other Herbert Smith publications, please email us.

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