UK: Back To Basics: Age Discrimination And Pensions

Last Updated: 13 December 2016
Article by Ruth Ormston

1 December 2016 marked the 10 year anniversary of legislation which set out the various age discrimination exemptions applying to pension schemes.

Here we set out to bust some of the most popular myths that have arisen when it comes to age discrimination. We also cover what you can't afford to miss when it comes to administering pension scheme benefits.

Age discrimination in general - a refresher

Age discrimination legislation in employment was introduced in the age discrimination regulations 2006 ("age regulations"), which came into force at the beginning of October that year, and have since been consolidated, along with other strands of discrimination legislation in the Equality Act 2010 ("Equality Act"). The obligation to legislate against age discrimination stems from European law.

The legislation in the UK prohibits:

  • Direct discrimination (where an individual is subjected to less favourable treatment because of their age)
  • Indirect discrimination (where a provision, criterion or practice puts an individual of a particular age/age group at a particular disadvantage when compared with others not in that group)
  • Harassment (where an individual is subjected to unwanted conduct relating to their age, which has the purpose or effect of violating their dignity, or creating an intimidating, hostile, degrading, humiliating or offensive environment for them).
  • Victimisation (where an individual is subjected to a detriment because they have done, intend to do, or are suspecting of intending to carry out, a protected act (e.g. bringing a discrimination claim)).

Unlike the other forms of discrimination covered by the Equality Act, both direct and indirect age discrimination are capable of being objectively justified. This means an indirect or direct act will not be unlawful if it can be shown that it is a proportionate means of achieving a legitimate aim.

But more on that later...

Isn't age discrimination just an employer problem?


The Equality Act inserts a non-discrimination rule into occupational pension schemes. This deems the scheme rules to include a provision which means that a responsible person (each of the trustees, the scheme manager and the employer) will not discriminate against another, in:

  1. carrying out their functions; or
  2. harassing or victimising another

in relation to the scheme.

This means that benefits must be levelled up if that is the only way the trustees or managers can give effect to not discriminating on the basis of age without infringing the rules of the scheme. This applies to benefits accrued after 1 December 2006.

Insurance providers are also under an obligation not to discriminate against individuals in the provision of their contract based pensions/ or death in service cover.

The obligation not to discriminate therefore falls on all those who manage occupational or personal pension schemes.

But isn't age discrimination always likely where pensions are concerned?

Yes, to some extent that's right; To strip out any element of differential treatment based on age from a benefit structure which is geared towards providing an income for individuals at the end of their working lives would be nonsensical.

This was recognised at the time the age discrimination legislation governing pensions was introduced. There is a set of statutory exemptions which apply to certain provisions and practices within pension schemes. These exemptions cover the majority of apparently age discriminatory practices in occupational schemes, including:

  • Length of service exemptions applying to admission or benefits;
  • Minimum or maximum ages for admission to a scheme, including different ages for different groups or categories of workers
  • The use of age criteria in actuarial calculations;
  • Age-banded contributions in a money purchase scheme where the aim is to make equal or more nearly equal pensions for workers of different ages (with the same salary and length of service);
  • Imposing an earnings cap (on benefits or contributions);
  • Certain enhanced benefits on ill-health, redundancy and death.

These exemptions mean that the practices listed above would not be age discriminatory. However, they would still need to be assessed against other legal requirements, for example an employer's automatic enrolment duties to enrol workers of a certain age into a qualifying pension scheme.

So if there are exemptions that apply to pension schemes, as a trustee or employer, we are protected from age discrimination challenges?


There are not exemptions for every type of potentially age discriminatory practice in relation to an occupational pension scheme.

For example, having a cut-off age for ceasing accrual (e.g. 65) is not covered by a specific exemption. This was not so much of an issue in 2006, when a statutory retirement age of 65 neatly aligned with the retirement age used by many occupational pension schemes. However, now the statutory retirement age has gone. Employees are working longer, and trustees and employers need to consider whether their pension schemes rules and practice need updating to reflect this.

Another fairly commonplace rule which is not covered by an exemption is what is sometimes referred to as a "golden rule", whereby an individual in an occupational pension scheme qualifies for an unreduced benefit after reaching a particular age and length of service.

To ensure those rules are not unlawful age discrimination, trustees and employers would need to examine whether or not they were capable of being objectively justified.

So if we can't rely on an exemption, can't we just objectively justify a rule?

In considering whether or not a rule or practice is capable of being objectively justified, a court or tribunal would want to see the evidence in place to support that conclusion. This is not just a rubber-stamping exercise, and each case will be specific to its facts.

Objective justification is a two-limb test it requires the employer and/or trustees to show that:

  1. there is a legitimate aim behind the rule or practice; and
  2. that the rule or practice is a proportionate means of achieving that legitimate aim.

It is often the second part of this test that employers fall down on. Cost alone will be insufficient to establish objective justification.

Is there anything else we need to know about?

Plenty! But we leave you with this...

As well as the exemptions listed above, there is a specific exemption contained in the Equality Act that applies to insured benefits. This was introduced following the abolition of the default retirement age in 2011, and stemmed from a concern amongst employers that they would be exposed to large premiums and costs in insuring benefits for an ageing workforce if there was no cut-off age at which it would be permissible to stop providing insured benefits.

The exemption means that it will not be age discriminatory for an employer to stop providing insurance cover in respect of an employee once they have reached the greater of 65 or state pension age.

This is likely to be of assistance to employers who insure their death benefits. The exemption does not, however, explicitly cover trustees. We expect that trustees would be able to 'piggy-back' onto the employer's defence provided in the exemption, but this has not been tested in case law to date.

The statutory exemption is also likely to be narrowly construed. This means any provision ending at an age which is not 'the higher of 65 or state pension age' (for example, age 70) would not fall within the exemption, and would need to be either amended, or objectively justified if it were to be maintained.

So what should we do?

Establish your own 'golden rule' by auditing your pension scheme(s) against the legislation and monitoring any developments in case law. We will be publishing a 'top tips' sheet for employers and trustees in our next insight article, so watch this space...

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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