In two recent cases, an employment tribunal (ET) has considered discriminatory pension scheme provisions.
In McCloud and Others v Lord Chancellor and Secretary of State and Another (McCloud), the ET held that discriminatory transitional provisions in the Judicial Pensions Regulations 2015 (JPR 2015), which mitigated the effect of compulsory pension reforms for older judges, could not be objectively justified and were therefore unlawful.
In Sargeant and Others v London Fire and Emergency Planning Authority and Others (Sargeant), the ET held that the transitional provisions for changes to the Firefighters’ Pensions Scheme were objectively justifiable and therefore were not unlawfully discriminatory on grounds of age, race or sex.
Neither decision is binding on a future tribunal, and we understand that both these decisions are likely to be appealed.
Unlike other forms of direct discrimination, direct age discrimination can be objectively justified. Article 6 of the Equal Treatment Framework Directive (the Directive) states:
"Member States may provide that differences of treatment on grounds of age shall not constitute discrimination, if, within the context of national law, they are objectively and reasonably justified by a legitimate aim, including legitimate employment policy, labour market and vocational training objectives and if the means of achieving that legitimate aim are appropriate and necessary."
In the UK, this has been implemented by section 13 of the Equality Act 2010, which provides that:
- direct age discrimination occurs where, because of age, A treats B less favourably than A treats or would treat others; and
- there will be no direct age discrimination where A can show that its treatment of B is a proportionate means of achieving a legitimate aim.
The upper Courts have also considered the issue of age discrimination in several cases and have held that:
- to justify direct age discrimination, employers must identify a social policy aim and not only a “real business need” (Supreme Court, having examined the European Court of Justice (ECJ) case law in Seldon v Clarkson Wright and Jakes );
- “mere generalisations” concerning the capacity of a specific measure to contribute to employment policy, labour market or vocational training objectives are not enough to show that the measure amounts to a legitimate aim (ECJ in Incorporated Trustees of the National Council on Ageing (Age Concern England) v Secretary of State for Business, Enterprise and Regulatory Reform);
- a Hungarian law reducing the compulsory retirement age of judges and prosecutors from 70 to 62 within the space of one year breached the age discrimination provisions of the Directive. Standardising retirement ages across the public sector and seeking a balanced age structure within the relevant professions were both held to be legitimate aims. However, Hungary had failed to establish that less extreme measures (such as staggering the change over a number of years) could not have been used to achieve those aims (ECJ in Commission v Hungary).
Public sector pension reform
In March 2011 the Hutton Report recommended wholesale public sector pension reform. It recommended, among other things, a move from a final salary to a career average basis, with an increase in normal pension age (NPA) in line with State pension age, but that benefits already accrued for past service (on a final salary basis) should be maintained. It concluded that no special protection should be necessary for those already close to retirement, as their pensions would be the least affected by the change.
Despite this, the Government decided to introduce transitional provisions to protect the rights of all those who were within 10 years of their NPA on 1 April 2012, with tapering protection for those with 10-14 years to go until NPA. Negotiations then took place with the relevant public sector unions to implement changes to the pension schemes.
Facts in McCloud
In McCloud, an ET had to decide at a preliminary hearing whether transitional provisions attached to reforms of the judicial pension scheme (JPS), which were acknowledged to be discriminatory on grounds of age, were objectively justified.
On 31 March 2015, the JPS was closed and replaced by the New Judicial Pension Scheme (NJPS). All serving judges were transferred into the NJPS, which provided generally less valuable retirement benefits.
Under transitional provisions in the NJPS, older judges were permitted to remain members of the JPS either until retirement (full protection members) or until the end of a period of tapered protection (tapered protection members), dependent on their age. Overall, the protected period was set at around ten years from the introduction of the NJPS.
The ten-year protected period was incorporated into the JPR 2015 because similar provisions had been agreed with trade unions for other workforces, and the Government wanted to maintain consistency across the public sector.
In addition, the 2011 consultation on State pension reform had led to the view that a period of ten years' notice was appropriate for any future changes to the State pension age.
A group of 210 judges at various levels, who were either tapered protection members or unprotected members of the JPS, brought discrimination claims based on the effect of the transitional provisions. They claimed that the provisions were directly discriminatory on grounds of age, that they constituted indirect sex and race discrimination, and that they contravened the principle of equal pay.
Could the transitional provisions be objectively justified?
The Government conceded that the transitional provisions involved less favourable treatment of the claimants because of age, and also accepted that the provisions had a disproportionate impact on female and black, Asian and Minority Ethnic judges, and so amounted to indirect sex and race discrimination. The ET therefore had to decide purely whether the transitional provisions were objectively justified, that is, whether they were a proportionate means of achieving a legitimate aim.
The Government argued that:
- the legitimate aim was protecting those closest to retirement from the financial effects of pension reform;
- there was a supplemental aim that public sector pensions should be consistent; and
- any differences in treatment were therefore a proportionate means of achieving a legitimate aim.
The ET decision
The ET determined that:
- focusing transitional provisions on members closest to retirement was not a legitimate aim, as those members were the least adversely affected by the move to the less generous NJPS;
- consistency with other public sector pensions reforms was capable of being a legitimate aim if properly evidenced, but the Government had failed to demonstrate beyond “mere generalisations” how such consistency was capable of contributing to its social policy objective; and
- even if the ET had accepted the Government’s proposed aims as legitimate, it would have found that the transitional provisions were not proportionate. The transitional provisions went beyond what was necessary, whether to achieve consistency or protect those closest to retirement.
The ET’s conclusion on objective justification relating to direct age discrimination applied equally to the indirect discrimination and equal pay claims.
Facts in Sargeant
The Firefighters' Pension Scheme 1992 was closed to new members on 1 April 2006. Existing members continued to accrue benefits under the 1992 scheme but new members joined the Firefighters Pension Scheme 2006. On 1 April 2015 the Firefighters' Pension Scheme 2015 was introduced. Differences between the 1992 and 2015 schemes included:
- NPA of 60 rather than 55;
- lower accrual rates; and
- pension based on career average rather than final salary.
The differences between the 2006 scheme and the 2015 scheme were not relevant to this case, as all the claimants and their comparators were members of the 1992 scheme.
It was common ground that the claimants had been treated less favourably on grounds of age. It was therefore accepted that the treatment would amount to unlawful age discrimination unless it could be objectively justified.
Some of the claimants also brought equal pay, sex discrimination and/or race discrimination claims on the basis that there were comparatively fewer women and ethnic minority firefighters in the older cohort.
The ET decision
The ET (employment Judge Lewzey sitting alone) dismissed all the claims and held in particular that the respondents had established that the age-related treatment in the transitional provisions was objectively justified.
The ET concluded that, on the evidence, the reasons for any disparities were wholly unrelated to sex or race and therefore the equal pay and indirect sex and race claims failed. In any case, the decision on objective justification for the age claim would apply equally in relation to sex and race.
The ET considered the McCloud determination and noted that it was not bound by this decision. It therefore disregarded McCloud and reached its decision solely on the evidence and submissions presented in this case.
The ET noted that the State was being asked to justify its “social policy choice” of giving protection to those closest to retirement age. It should therefore be distinguished from a case in which an individual employer is seeking to justify an “operational decision”. In cases where justification is sought of social policy, ECJ and domestic case law confirms that the State has a “broad discretion” or a “wide margin of appreciation” as to the choice of aims and the measures it adopts in order to achieve them.
The ET found that, taking account of the State's broad discretion in social policy matters, the following were legitimate aims to:
- protect those closest to NPA (who had the least time to rearrange their financial affairs prior to retirement);
- take account of their greater legitimate expectation that their pension entitlement would not change significantly;
- prevent a cliff edge between the protected and unprotected groups; and
- ensure consistency across the public sector.
The ET noted that the Hutton Report had considered transitional provisions for older workers to be unnecessary. However, the Government had decided to make more generous provision for those workers. This was a social policy decision and the evidence showed it had been made with great care and after negotiations with the relevant unions.
In performing the balancing exercise required under the proportionality test, the ET considered the claimants' argument that the impact on the younger firefighters (the unprotected group) was catastrophic and unfair. Their NPA is 60 rather than between 50 and 55, they have a lower accrual rate, a less generous lump sum, and a career average rather than final salary scheme. However, the ET noted that this argument went to the pension reforms themselves, which were not in issue. The case solely concerned the transitional arrangements.
Having held that it was legitimate to try and protect those closest to retirement, the ET held that it was reasonably necessary for the Government to draw a line somewhere. That was a social policy decision and inevitably some individuals would be disadvantaged. In the circumstances the decision was proportionate.
It is difficult to reconcile the McCloud and Sargeant decisions. The respective ETs reached the opposite conclusion on some of the key questions, including whether protecting those over a certain age was even capable of being a legitimate aim, because it was itself age-based. In addition, the ET in McCloud considered there was no rational explanation as to why the judges closest to retirement needed protection, as they were least affected by the changes.
It is understood that the Government has now sought permission to appeal the McCloud decision, citing among other things the ET's decision in Sargeant in support of the appeal. In addition, the Fire Brigades Union is also understood to be considering an appeal in Sargeant.
Neither decision is, of course, binding on a future tribunal, but it is surprising that opposite conclusions could have been reached on facts which are so similar. There are also other cases in the tribunal system, including one brought in relation to the police pension scheme, so this is an area that will require watching in future.