The Employment Appeals Tribunal has handed a near-complete victory to the Department for Work and Pensions over a ruling that threatened limits paid to members of the Pension Protection Fund, having concluded that the majority of respondents no longer had rights against age discrimination that had been grounded in European law.
The DWP had appealed a January verdict by the Employment Tribunal, which concluded that an exemption in UK law regarding pensionable service before December 1 2006 was incompatible with an EU framework directive on discrimination.
Seventeen claimants at the January hearing argued that by cutting or limiting their pension payments, the T&N Retirement Benefits Scheme had treated them less favourably due to their age.
On October 27, Justice Eady upheld one ground of appeal submitted by the DWP with respect to all but two of the January claimants. Proceedings for these two pensioner members may continue.
Many schemes would have braced themselves for a wave of claims from members
John Gordon, Ashurst
The appeal was upheld on the basis that, aside from Mr Hampshire and Mr Farrell, whose claims may still be considered, the remaining claims were brought after the conclusion of the Brexit implementation, which ended on December 31 2020.
The relevant European legislation and its principle of non-discrimination had not been built into UK law as part of the UK’s withdrawal from the EU, therefore denying these rights to the claimants.
“Had the decision gone the other way, it wouldn’t have been just the PPF [that] would have been affected,” a briefing note by LCP said.
Schemes may have faced reviews to comply with age discrimination law
The case follows a 2018 ruling from the European Court of Justice, which determined that PPF members should not receive less than 50 per cent of their entitled benefits in the event of the insolvency of their employer.
The claimants, with the exception of one — a widow of a contributing member to the scheme — had exited pensionable service, with benefits entering payment before January 31 2005.
The following year, the sponsoring employer entered a company voluntary arrangement. Its scheme remains in assessment for entry into the PPF. In October 2011, the employer agreed a bulk annuity contract with Legal & General, insuring its benefits to just above the PPF compensation level.
The Pensions Act 2004 restricts pension payments for schemes at the beginning of their PPF assessment period so that they would not surpass the lifeboat fund’s compensation level, even without being under the responsibility of the PPF at this stage.
The pensions lifeboat will pay 90 per cent of a scheme member’s benefits if they have not reached the normal retirement age of the scheme at the time it enters a PPF assessment period. Pensioners receive 100 per cent of their benefits.
The claimants’ benefits were reduced accordingly from July 10 2006, when the assessment period began.
The January tribunal disapplied the Equality Act (Age Exceptions for Pension Schemes) Order 2010, deciding that it was incompatible with the European directive. Employment tribunal decisions, however, are not binding on the courts.
After the ruling was made, lawyers told Pensions Expert that it could require schemes to review their rules to ensure they comply with age discrimination law.
“All occupational pension schemes may have had to re-examine their benefit structures to see if any aspects in relation to pre-December 1 2006 pensionable service could be held to be age discriminatory,” a LCP note suggested, describing this as “a recipe for potential chaos”.
Following the January ruling, Arc Pensions Law partner Vikki Massarano told Pensions Expert the PPF would need to further review its compensation structure, which could in turn lead to a need for higher levies from defined benefit schemes.
A PPF spokesperson said: “We are not a party to these proceedings but can confirm it does not dispute the level of PPF compensation payable. We continue to make progress removing the PPF compensation cap and paying arrears to affected members.”
Brexit means Brexit
The DWP submitted five grounds of appeal. Three were rejected, while another, in which the DWP sought to justify the exception to discrimination law under the 2010 order, was not allowed to proceed to a full hearing, as it would have required more fact-finding and evaluation by the Employment Tribunal.
The government’s successful ground of appeal — concerning 15 of the 17 claimants — depended on the timing of their claims around the UK’s exit from the EU.
Before the UK left the EU, the EU legal principle of non-discrimination, as contained within the EU charter, applied horizontally to the UK. This remained the case before the end of the withdrawal period on December 31 2020.
The January claimants contended that they could rely on the general principle of non-discrimination within the Withdrawal Act. ‘Retained EU law’ is defined as that which is part of several sections of the Act.
The Act, however, makes it clear that the EU Charter is not to be treated as part of domestic law following the ending of the withdrawal period.
Per the Withdrawal Act, following the end of the withdrawal period, “no court or tribunal may disapply or quash any enactment or other rule of law because it is incompatible with any of the general principles of EU law”, Justice Eady said.
In a separate case, however, the Court of Appeal observed in 2021 that the removal of rights linked to general principles of EU law does not apply, in certain cases, to proceedings that began within three years of the completion of the UK’s withdrawal from Europe.
Hampshire and Farrell’s proceedings fell within this scope and began, crucially, on November 1 2019 — before Brexit. The judge was therefore satisfied that their claims could be brought under EU retained law and could rely on the principle of non-discrimination under the EU Charter.
The remaining claims, however, only commenced after the UK’s departure from the EU, on August 9 2021, and the government’s appeal against them was upheld.
Legal review raises questions over PPF assessment period
Compensation paid by schemes during the Pension Protection Fund’s assessment period has come under legal scrutiny, with an employment tribunal decision potentially forbidding limits on benefits paid during that time, according to lawyers.
“It is clear that pension scheme members cannot now rely on European legislation to strike down domestic law which they consider unfair or discriminatory, unless the law has been written into the UK statute books,” Ashurst counsel John Gordon told Pensions Expert.
“Many trustees are likely to breathe a sigh of relief on hearing this news. Schemes which had relied on the 2006 cut-off when carrying out their age discrimination review had feared a wave of claims from affected members. This decision should go a long way to allay those fears.
“Had the original tribunal decision been upheld, many schemes would have braced themselves for a wave of claims from members based on historic pensions provisions which fell foul of EU discrimination rules.”
