The Occupational Pension Schemes (Equal Treatment) Regulations 1995, SI 1995/3183 made under the Pensions Act 1995 supercede the Occupational Pension Schemes (Equal Access to Membership) Regulations 1976, SI 1976/142, as amended, (and therefore automatically also replace the stop-gap amendment regulations in the May 1995 Occupational Pension Schemes (Equal Access to Membership) Amendment Regulations 1995, SI 1995/1215)
Click to go to appropriate notes below:
There is a general problem in relation to the quite common practice of integrating company pensions with the State Pension scheme (sometimes called "pensions clawback"). Many final salary occupational schemes are integrated with the State Scheme. The pension provided by an integrated scheme is designed to bring the aggregate pension of the pensioner concerned, inclusive of his/her basic state pensions, up to a percentage of his final salary. This is frequently done by providing that "pensionable earnings" are calculated as actual earnings minus a multiple of the basic state pension.
At various times since the introduction of the State national insurance scheme in 1948 this practice has been encouraged and indeed operated by the State. It enables pension fund contributions in final salary schemes to be considerably lower than they might otherwise be.
For various reasons the practice is thought by some to be unacceptable (although the main problem is frequently a lack of communication in that scheme members often fail to realise that their "x/60th of final salary" pension from their employer's scheme is not "x/60ths" on top of Basic State Pension but is "x/60ths" minus Basic State Pension). In recent years the government has been under considerable pressure to outlaw the practice - the arguments for and against are well summarised in a Parliamentary Briefing paper of December 1998 prepared by the Association of Consulting Actuaries.
One particularly serious aspect of the problem concerns part-time workers and others whose wages are below the national insurance lower earnings limit ("LEL"). Because their earnings are so low they may not pay enough national insurance contributions to qualify for a State Pensions and if their employer's scheme is an "integrated scheme" they will not be able to benefit from it either.
As most part timers and low paid workers are women it is arguable that integrated pensions are indirectly sex discriminatory so far as they are concerned and thus are unlawful unless they can be objectively justified. The pensions ombudsman agreed with this argument and held in a case in 1997 that an occupational pension scheme rule which restricted membership to those who were earning in excess of the national insurance lower earnings limit ("LEL") (and thus barred low earning part timers from membership) amounted to indirect sex discrimination and further that another rule which required deduction of an amount equal to LEL from pensions in payment was also indirect sex discrimination. This decision of the Pensions Ombudsman was overruled by the High Court in April 2002 (see Shillcock v Uppingham School Retirement Benefits Scheme 2002 IRLRE 702, ChD).
go to next updated reference in this note.
See also notes at Part-time workers/pensions/a general note .
GMPs are the compensating benefit paid by company pension schemes which contracted-out of the State Earnings Related Pension Scheme before 6th April 1997. Any company pension scheme had to pay at least the guaranteed minimum pension if it was to be an acceptable replacement of a SERPS pension (following the Pension Act 1995 GMPs no longer accrue from 6th April 1997. Instead contracted out company pension schemes muist offer pensions payable that are at least 'broadly equivalent' to those specified under a reference scheme test).
Under the rules for calculating GMPs the fact that men do not become entitled to state pension until age 65 while women become enitlted at age 60 means that GMPs payable to men are less than those for women.
In 2000 the pensions ombudsman ruled that GMPs should be equalised to ensure conformity with EC law but the High Court ruled in February 2001 that the Ombudsman had no power to make that ruling (see Williamson v Trustees of Sedgwick Group Pension Scheme, High Court on 23rd February 2001, noted in Financial Times of 24th February 2001). The GMP question is thus still unresolved although the High Court judge (Rimer J.) is reported to have said that a "scheme pension is one indivisible pension", thus appearing to support the view that GMPs are not subject to equal treatment rules on their own. The Financial Times article noted above estimates that if GMPs are subject to free standing equal treatment rules the cost to employers could be as much as £15 billion.
Enormously complex issues emerged in connection with the application to specific cases of the ECJ and House of Lords rulings in Preston and others v Wolverhampton NHS Trust ECJ 2000 , reported at [2001] ICR HL which established that it is unlawful under the Equal Pay Act 1970 for a company or other occupational pension scheme to allow membership only to full time employees (and to refuse membership to part-timers).
The case involves over 60,000 individual claimants. It started in 1995/96 and has involved judgments of both the House of Lords and the European Court of Justice (see Preston and others v Wolverhampton NHS Trust EAT 2003 ). The issues are so important and widespread that there is a dedicated Part-time worker pensions section on the Employment Tribunals Service website.
4. Reduction of pensions in payment
The Court of Appeal held in 2005 that under normal pension fund wording the calculation of a member's pension was a once-for-all calculation, carried out as at the date when the pension first came into payment and that a power to reduce pensions already in payment would require the clearest words ( Aon Trust Corpn v KPMG (a firm) CA 2005 ] EWCA Civ 1004, Court of Appeal on 28th July 2005, reported at [2006] ICR 18, CA).
A private members Bill was introduced in Parliament in July 2004 (see Hansard 20th July 2004, Col 192 re Pensions (Clawbacks) Bill. The idea behind this Bill, similar in scope to one enacted in the Republic of Ireland in 2000, was that any future increase in state pension could not be clawed back. However the Bill failed to become law.
2. Guaranteed Minimum Pensions ("GMPs").
3. Part-timers: the Preston case.
Although many claims are still unresolved, the legal position for the future has now been clarified, with final Occupational Pension Schemes (Equal Treatment) (Amendment) Regulations 2005, SI 2005/1923 in effect from 10th August 2005. For more detail please go to notes at Sex discrimination/equal pay and terms of employment/pension schemes .
updated Sept2005