In the latest of a line of cases that have challenged the cap on compensation paid by the Pension Protection Fund (“PPF”) to members below normal pension age, the Employment Appeal Tribunal (“EAT”) has dismissed the age discrimination complaints of all bar two members in the case of Secretary of State for Work and Pensions v Beattie & Others.
The EAT’s decision is being described as a victory for Brexiteers as the reason the majority of the pensioners’ claims were not allowed to proceed was because following the UK’s withdrawal from the European Union on 31 December 2020, it is no longer open to UK courts and tribunals to disapply UK legislation on the basis of its incompatibility with the general principles of EU law and/or EU Directives. It remains an open question as to whether before the UK left the EU, the restriction in UK law that prevents age discrimination claims being brought against trustees of occupational pension schemes in relation to pre-1 December 2006 pensionable service, was contrary to EU law and should, therefore, be disapplied. The Employment Tribunal will now consider that question in respect of the two members who had commenced proceedings before 31 December 2020. The requirement that any similar cases must have been begun before 31 December 2020 will, however, prevent future claims being brought and consequently any wider application of the case.
Who should read this update?
The principles set out in this case will be of comfort and interest to all those involved in sponsoring, managing and administering occupational pension scheme and their advisers.
Background to the case
The case involved 17 pensioner members of the T&N Retirement Benefits Scheme, who had all left pensionable service and put their pension into payment no later than 31 January 2005. The scheme entered PPF assessment on 10 July 2006 following the insolvency of its sponsoring employer. Those pensioners who had not reached normal pension age at that date suffered reductions in their benefits, receiving compensation at a rate of 90 per cent of their accrued pension subject to a cap. In line with PPF compensation rules, pensioners over normal pension age received 100% of their accrued pension.
The pensioners complained that this amounted to unlawful age discrimination, being a breach of the non-discrimination rule in section 61 of the Equality Act 2010, to which all occupational pension schemes are subject. They argued that the exception contained in Article 3 Equality Act (Age Exceptions for Pension Schemes) Order 2010 (the “2010 Order”) which provides that “it is not a breach of the non-discrimination rule for the employer or trustees or managers of a scheme to use rules, practices, actions or decisions, in respect of pensionable service before 1 December 2006” should be disapplied as it was incompatible with general principles of European Union law and/or Council Directive 2000/78/EC (the “Framework Directive”).
The Employment Tribunal (“ET”) who considered the claim in January 2022 upheld the claimants’ complaints and held that the temporal cut-off date of 1 December 2006 in the 2010 Order should be disapplied. Reference was made to the 2017 case of Walker v Innospec in which the Supreme Court held that a similar temporal restriction in the Civil Partnership Act 2004 was incompatible with the Framework Directive - in particular, the section which authorises a restriction of payment of benefits to surviving civil partners based on periods of pensionable service before 5 December 2005.
Whilst decisions of the ET are not legally binding in other cases, the case raised a question as to the potential wider implication of the judgment if age discrimination claims could be brought against trustees of occupational pension schemes in relation to pre-1 December 2006 pensionable service. The Secretary of State for Work and Pensions (who did not appear before the ET) brought the appeal and in preparation for the hearing in the EAT wrote to various pension trustees in an attempt to obtain data as to the potential financial implications for schemes if rules, practices, actions or decisions currently protected by Article 3 of the 2010 Order were no longer protected.
The Secretary of State’s winning argument
In its appeal the Secretary of State raised a new and ultimately successful argument, namely that the ET had failed to take into account the European Union (Withdrawal) Act 2018 (the “Withdrawal Act”) when reaching its decision. Under the Withdrawal Act:
- Any provision or measure which is an EU directive is not “direct EU legislation” as defined and does not form part of UK law after 11 p.m. on 31 December 2020 (“IP completion day”). As such the Framework Directive did not form part of UK law after IP completion date;
- The UK legislation that implemented the Framework Directive (being the 2010 Order) continues to have effect in UK law on and after IP completion day. However, Article 3 of the 2010 Order provides that age discrimination claims cannot be brought in relation to pensionable service before 1 December 2006. All 17 claimants in the case had accrued all their pensionable service before 1 December 2006. The EAT noted that there had been no prior suggestion by the European Commission or anyone else that the UK had failed to properly implement the Framework Directive by making Article 3 of the 2010 Order.
- The general principle of non-discrimination/equal treatment is contained in Article 21 of the Charter of Fundamental Rights of the European Union (the “EU Charter”). However the Withdrawal Act provides that after IP completion day, the EU Charter is no longer part of UK law and it is no longer open to a court or tribunal to disapply a domestic enactment on the basis that it is incompatible with the EU Charter and/or general principles of EU law. The only exception is in relation to proceedings commenced prior to IP completion day.
The EAT, therefore, held that it was not open to the ET to disapply the 1 December 2006 cut-off date contained in the 2010 Order on the basis that it was incompatible with the general principle of non-discrimination/equal treatment contained in the EU Charter and/or the Framework Directive. It, therefore, dismissed the claims brought by 15 of the 17 pensioners who had commenced proceedings on or after IP completion day. The only cases that were allowed to proceed were those of Mr Hampshire and Mr Farrell who had commenced proceedings on 1 November 2019, before IP completion day. Their cases have been remitted to the ET to decide whether PPF compensation payable to members below normal pension age at the assessment date is discriminatory on the grounds of age.
Takeaways for trustees and sponsoring employers
- Trustees and employers can take comfort from this judgment as it restricts the ability of members and their dependants to bring new claims in respect of any age discriminatory rules, practices, actions or decisions in relation to any pensionable service completed by the member before 1 December 2006.
- To the extent any such claims are already in train, they will only be allowed to continue if proceedings were commenced before 11 p.m. on 31 December 2020.
If you have any questions in relation to this article, please contact our Pensions team. This update was written with assistance from Sarah Moody.