UK: UK Pensions Discrimination: The Discrimination Jigsaw - Putting The Pieces Together

Last Updated: 1 November 2004
Article by Neil Bowden, Matthew Preston and Lorenz van der Meij

Originally published in Linklaters' Pensions Update on 6th October 2004

Legislation to tackle various forms of discrimination in the workplace seems to have come thick and fast over the past few years (and there is no sign of the flow easing until 2006). With the publication of numerous directives, consultation papers and draft regulations, it is easy to lose sight of the "big picture". This article examines the various strands of discrimination and what they may mean in practice for a pension scheme.

Back to basics – the Framework Directive 2000

The basis for all the new legislation is actually a very short (7 page) European Directive 2000/78/EC, commonly called the Framework Directive, published on 2 December 2000. Its purpose is succinctly put in Article 1:

"….to lay down a general framework for combating discrimination on the grounds of religion or belief, disability, age or sexual orientation as regards employment and occupation".

The Directive outlines the basic concepts applying to these four strands of discriminatory conduct. It divides discrimination into two categories, direct discrimination and indirect discrimination.


What does it mean?

Direct discrimination

Where one person is treated less favourably than another in a comparable situation

Indirect discrimination

Where an apparently neutral practice would put an individual at a disadvantage compared with another person

The Framework Directive prohibits any direct discrimination. However, indirect discrimination is treated differently. Indirect discrimination is prohibited unless the practice is "objectively justified" by a legitimate aim and the means of achieving that aim are "appropriate and necessary".

The above concepts underpin all of the legislation discussed in more detail below. There are though subject specific variations, particularly in disability discrimination.

The Framework Directive lays down a timetable for implementation. The UK Government intends to meet that timetable as follows:

Category of discrimination

UK Legislation


Came into force 2 December 2003 – Employment Equality (Religion or Belief) Regulations 2003

Sexual orientation

Came into force 1 December 2003 – Employment Equality (Sexual Orientation) Regulations 2003


October 2006 – Consultation on Government proposals ended October 2003


Came into force 1 October 2004 - Disability Discrimination Act (Pensions) Regulations 2003

A Age discrimination

1. Stage of implementation

The Government published its consultation paper, "Equality and Diversity: Age Matters", on 2 July 2003. Draft regulations have been expected for some time, as the legislation is to come into force on 1 October 2006. The Government has given a clear commitment to give those with responsibilities and rights as much time as possible to prepare for the new legislation but, as yet, nothing has emerged. The latest indications are that the Government is reviewing the timetable for consultation on the draft regulations.

2. How will the legislation operate?

The consultation paper sets out the Government’s view of how the concepts outlined in the Framework Directive will be applied to age discrimination.

The concept of direct/indirect discrimination on the basis of age will be written into UK legislation. Similarly, indirect age discrimination can be permitted if "objectively justified".

There is, however, a specific exception in the Framework Directive to the "standard" discrimination structure in its application to age discrimination. The Directive provides that the absolute prohibition on direct discrimination could, at the discretion of the Member State, be such that it will not be discrimination if it is "objectively and reasonably justified by a legitimate aim". The UK Government intends to take up this option and has proposed a limited defence to direct age discrimination where the age-based approach falls within a list of specific aims. The aims proposed by the Government at this stage are:

  • health, welfare and safety
  • facilitation of employment planning
  • particular training or requirements for the post in question
  • encouraging and rewarding loyalty
  • the need for a reasonable period of employment before retirement.

It will be interesting to see how this list develops during the course of the legislative process.

3. What does this mean for pension schemes?

The application of age discrimination legislation to pension schemes is an interesting area. After all, a defined benefit pension scheme is, by its very nature, a mechanism by which older employees receive a greater benefit than younger employees. However, the Government has indicated that the legislation will recognise the special position of pension schemes in relation to the use of age to calculate benefits.

That said, there are a number of areas where potentially discriminatory treatment will have to be removed. For example, a defined contribution pension scheme providing different levels of employer contribution at different ages would be directly discriminatory and, therefore, unless specifically excepted in the Government’s list, would be prohibited. Similarly, some defined benefit pension schemes provide for different employee contribution rates at different ages. Again, this could be categorised as direct age discrimination.

Another concern relates to employers who have closed defined benefit pension schemes to new employees while letting existing members continue to accrue benefits under it. This would be indirect discrimination. Therefore, unless it could be said to be objectively justified, employers may face claims from younger employees that they are being discriminated against. It would be an unfortunate side effect of this new legislation for employers to be forced to close schemes for all members in order to comply. This comment has been made to the Department for Work and Pensions

B Discrimination on grounds of sexual orientation, religion or belief

1. Stage of implementation

Regulations outlawing discrimination on the grounds of sexual orientation and religion or belief came into force in December 2003.

2. How does the legislation operate?

These regulations outlaw discrimination and harassment on grounds of sexual orientation and religion or belief by trustees and managers of occupational pension schemes, by making it unlawful for trustees or managers to discriminate on these grounds against a member or prospective member of a scheme while carrying out their functions as trustees or scheme managers. This applies in particular to their functions relating to the admission of individuals to a scheme and the treatment of the members in it.

3. What does this mean for pension schemes?

Trustees and managers should note the following:

  • the regulations provide that every occupational pension scheme shall be treated as including a "non-discrimination rule". This means that the trustees or managers of the scheme should not do anything which would constitute discrimination on these grounds against a member or prospective member. The regulations give trustees of occupational pension schemes the power to alter the scheme to comply with the "non-discrimination" rule
  • the regulations do not give examples to indicate where the Government would deem rule amendments necessary, but an obvious example would be a scheme rule dealing with spouses’ pensions. Where such a rule currently provides that, where there is no surviving spouse, the trustees may pay the pension instead to a "person of the opposite sex" whom they consider had a relationship with the member closely resembling marriage, this would be discriminatory under the new legislation. A scheme rule would have to be amended to remove the reference to "the opposite sex". When considering payment of benefits to unmarried partners or dependants generally, it would not be appropriate for trustees to take account of the person’s sex
  • where a member or prospective member of the scheme has been subjected to harassment or discrimination in relation to the scheme, they can bring a complaint against the trustees or managers of the scheme before an Employment Tribunal. Also, a complaint that the "non-discrimination rule" has been breached can be referred to the Pensions Ombudsman
  • the tribunal can make a declaration of the individual’s rights under the Scheme where the complaint is upheld, which can then be enforced under the rules of the scheme. Depending on the complaint, such a declaration will take the form of an order declaring that the complainant has a right to be admitted to the scheme or (where the complainant is already a member) has a right to membership of the scheme without suffering discrimination
  • no order for compensation can normally be made by the tribunal unless there are grounds for compensation for injury to feelings.

Where a member or prospective member brings a complaint before a tribunal the employer can be joined to the complaint.

C Disability discrimination

1. Stage of implementation

Following hard on the heels of the general regulations amending the Disability Discrimination Act 1995, the Disability Discrimination Act (Pensions) Regulations 2003 required a code of practice to be put in place by 1 October 2004. The regulations apply to all employers, trustees and managers involved with any UK pension schemes from that date.

2. How will the legislation operate?

The definition of "disability" has not changed. It remains as follows:

"… a person has a disability … if he has a physical or mental impairment which has a substantial and long-term adverse effect on his ability to carry out normal day-to-day activities".

The regulations introduce a non-discrimination rule into all occupational pension schemes requiring the trustees to refrain from discriminating against or harassing any disabled persons in relation to their schemes.

This rule does not apply to rights accrued or benefits payable in respect of periods of service prior to 1 October 2004. However, it does apply to any communications, with members or prospective members, made after that date, and these may relate to pre 1 October 2004 rights or benefits. The usual definition of direct and indirect discrimination is rather different in disability discrimination. The following definition applies:

"…. a person directly discriminates against a disabled person if, on the grounds of the disabled person’s disability, he treats the disabled person less favourably than he treats or would treat a person not having that particular disability whose relevant circumstances, including his abilities, are the same as, or not materially different from, those of the disabled person". (Section 3A (5) of the Act).

Harassment is new. Now, employers and trustees of a pension scheme can be found liable for unwanted conduct which has the purpose or effect of violating a disabled person’s dignity, creating an intimidating, hostile, degrading, humiliating or offensive environment and it is reasonable to consider that the conduct had that effect.

The regulations give the trustees the power to alter the scheme to comply with the non-discrimination rule. The trustees may ignore any restrictions on the amendment power in order to comply with the regulations. Such alterations may be backdated to 1 October 2004, but no earlier.

To establish a claim against the trustees, it must be clear that they were aware that the disabled person in question was a relevant disabled person.

As a matter of procedure, the new regulations state that the employer in relation to a scheme shall be automatically treated as a party to any Employment Tribunal hearing of a complaint against the trustees of that scheme. The employer would be entitled to appear and be heard in accordance with the employment tribunal’s procedural rules.

The duty to make adjustments: This is the most significant of the new regulations. Trustees or managers must take reasonable steps to prevent the provision, criterion, practice (including a scheme rule) or feature from putting a relevant disabled person at a substantial disadvantage in comparison with persons who are not disabled. This would include the physical features of any premises occupied by the trustees or managers. Since they are only required to act reasonably, the justification defence has been removed – if an adjustment is reasonable, there cannot sensibly be any justification for not making it.

3. What does this mean for pension schemes?

There are a number of potential consequences for pension trustees:

  • two recent cases, Archibald v Fife and Nottingham v Meikle, have suggested that the duty to make reasonable adjustments may require positive discrimination, i.e. an employer may have to treat a disabled person more favourably than persons who are not disabled. The aim here is to remove the disadvantage which is attributable to the disability. We will have to await further developments in the courts but exactly how far reasonable adjustments must go is still open to speculation
  • most schemes require the completion of a medical questionnaire concerning the prospective member’s health and most provide life cover. No scheme will be able to refuse membership or life cover to disabled members in future, even if their life cover premiums will be substantially higher than those of non-disabled members, if the reason for those higher premiums is connected to the member’s disability. However, life impairment is not the same as (or necessarily linked to) disability. It therefore seems that disabled members can be refused membership, or could have their benefits restricted, if a non-disabled member would be treated the same way in the same circumstances
  • employers and trustees should note that they are only required to treat the disabled members equally. After all, disability does not automatically mean that a member has a reduced life expectancy. The employer and trustees could provide that all members, regardless of their disabilities, are entitled to a fixed sum of money each year from the employer to pay premiums rather than a fixed level of cover
  • trustees must bear in mind that the new regulations apply to all member communications, regardless of whether they relate to benefits accrued before 1 October 2004 or not
  • the employer will always be involved in any Employment Tribunal hearing relating to the trustees or managers of one of its pension schemes. This is an opportunity both for the employer to make representations and to be made liable for the correction of the discriminatory provisions. The Employment Tribunal’s powers include making a declaration that all of the parties must correct the discrimination straightaway.

This article is intended merely to highlight issues and not to be comprehensive, nor to provide legal advice. Should you have any questions on issues reported here or on other areas of law, please contact one of your regular contacts at Linklaters.

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