The Court of Justice of the European Union (CJEU) has ruled that an employer can make age-related contributions to an occupational DC scheme, as long as the difference in treatment can be objectively justified.
The Equal Treatment Framework Directive (2000/78/EC) prohibits both direct and indirect discrimination in employment and occupation, with permitted exceptions:
- differences of treatment on grounds of age if they are objectively and reasonably justified by a legitimate aim and if the means of achieving that aim are appropriate and necessary (Article 6(1)); and
- the fixing for occupational social security schemes of ages for admission or entitlement to retirement or invalidity benefits, including the fixing of different ages for employees or groups or categories of employees, and the use of age criteria in actuarial calculations, provided that this does not result in discrimination on the grounds of sex (Article 6(2)).
In the Danmark/Experian case the Danish government and Experian contended that the aim of the scheme's three age-related contribution bands was to help younger workers save for retirement while having a reasonable amount of disposable income and to enable older workers to save at an appropriate level as they approached retirement, and also to cover the increased risks of ill-health and death of older workers.
The CJEU, taking a restrictive interpretation, held that age-related contributions cannot fall under the general exemption in Article 6(2) as that article applies only to the fixing of ages for admission and entitlement. Any exemption for age-related contributions would have to fall under Article 6(1) and be justified by the employer as an appropriate and necessary means of achieving a legitimate aim. The aims put forward in this case did not appear unreasonable to the CJEU but the case was remitted back to the Danish court to decide whether the difference in contribution levels was in fact justifiable.
The UK's Equality Act (Age Exceptions for Pension Schemes) Order 2010 provides a general exemption for age-related contributions to DC schemes where the aim in setting the different rates is to equalise, or to make more nearly equal, benefits for members of different ages in respect of comparable aggregate periods of pensionable service. The CJEU's interpretation of Article 6 of the Directive seems to suggest that merely satisfying the aim of "equalising or making more nearly equal" may not be enough and that a UK employer would separately have to justify age-related contributions as an appropriate and necessary means of achieving a legitimate aim.
Click here for the judgment in HK Danmark v Experian A/S.
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