NHS trust saves £700k in early retirement ruling

A ruling saving one NHS trust nearly £700,000 has implications for schemes in deficit looking to cut costs on expensive benefit payouts. 

The High Court judgement saved the North Cumbria primary care trust £696,260 by excusing it the payment of one member's early retirement benefits on the basis of cost to the employer. 

In order to protect against future litigation, schemes in deficit looking to make similar savings should maintain transparent communication records, regularly cleanse data and make use of legal advice.  

Mike Forbes, director of corporate affairs at NHS Cumbria, said: “We were protecting the taxpayers’ money and we have been vindicated in taking the action we did on the basis of costs. The Court of Appeal was very clear about this. 

“It upheld the responsibility of a public sector employer to have acted in this way on the basis of cost."

He said the decision would form case law for similar cases.  

North Cumbria's case

Employee Nigel Woodcock claimed age discrimination after he was made redundant a year before his 50th birthday, when he was entitled to early retirement benefits.

But he lost the case after Justice Underhill ruled the dismissal justifiable on the grounds of the cost savings made.

It is about making sure you understand every tranche of the members’ benefit and from what age you guaranteed to pay it

Lynda Whitney, Aon Hewitt

This could open up a route for employers to save costs by avoiding the payment of benefits – with knock-on implications for companies saddled with large pensions deficits.

Lawyers welcomed the decision, as it shed light on ambiguity surrounding age discrimination and schemes handling employee benefits.

Lynda Whitney, principal at Aon Hewitt, said schemes should always seek legal advice when considering making cutbacks on benefits.

Discretionary practice can occur in all parts of the scheme – but it is commonly used to split pension ages, which is often a complex area.

Whitney said: “With early retirement factors it is about making sure you understand every tranche of the members’ benefit, and from what age you are guaranteed to pay it.”

Any changes to customs and practices must be made under the umbrella of sound legal advice to make sure all the benefits are paid.

If schemes are in a tight situation, Whitney advised managers to review member benefits and split them between those which are guaranteed and those which have arisen out of habit.

Putting the time in by adding an extra meeting with administrators to understand how early retirement could save the scheme money would be cost-effective in the long run.

Rigorous governance and due diligence around gathering data, such as member addresses, and keeping it up-to-date would put schemes in good stead should any future litigation arise.

The schemes of companies which have had mergers and acquisitions and large sections of members moved around should be particularly wary of benefit guarantees. 

Legal implications

Age discrimination legislation is set out in the Equality Act 2010:

• Since December 1, 2006, it has been unlawful for employers or trustees to directly or indirectly discriminate against actual or potential members due to their age;

• Direct discrimination means treating one member less favourably than another on the grounds of age; 

• Indirect discrimination is defined as applying apparently age-neutral criteria which places members of a certain age at a disadvantage.

But the act does contain a number of exemptions, such as closure of the scheme to new entrants, minimum ages for early retirement and enhanced early retirement terms on ill health or redundancy.

Conversations with administrators or third parties could be disclosed to a tribunal at a later stage – so bear in mind what they are saying

Matthew Swynnerton, DLA Piper

Actions by the scheme or employer which are directly or indirectly discriminatory and don’t fall under the exemptions can be permitted in the eyes of the law.

To pass such decisions, the employer should demonstrate the discrimination is “objectively justified” – and the Woodcock case was the first to cite cost alone as the reason.

Matthew Swynnerton, partner at DLA Piper, said for objective justification to be considered, employers should set their objectives at the start and make sure they aren’t just cost-based.

Documenting correspondence with the workforce and being consistent in conversations with third-party administrators, lawyers and employees also safeguards against future litigation.

"Conversations with administrators or third parties could be disclosed to a tribunal at a later stage – so bear in mind what they are saying," Swynnerton said.

Communications with lawyers are considered under privilege, so would not be disclosed under tribunal, he said.

He warned there was more scope for indirect discrimination rather than direct discrimination.