Stronachs Logo

There have been two appellate level court decisions regarding pension benefits this month which will be of interest to employers. The first deals with what amounts to “unfavourable” treatment for the purpose of a claim for discrimination in respect of something arising in consequence of a disability.  The second concerns pension schemes who have not equalised benefits for same-sex spouses following the civil partnership and same-sex marriage acts.

 

Disability Discrimination and Ill-Health Retirement Pensions

In Williams v Swansea University Pension and Assurance Scheme, Mr Williams was a disabled person under the Equality Act 2010 suffering from Tourette’s Syndrome, obsessive compulsive disorder, and depression. After Mr Williams had worked full time for 10 years, his hours were adjusted at his request and for the last few years of his employment he worked part time. At age 38 he successfully applied for ill health retirement on the ground of medical evidence that he was likely to become permanently incapable of efficiently discharging the duties of his post.

The university offered a generous pension scheme in relation to ill-health retirement, calculated on a career average basis. Mr Williams was to receive his benefits accrued up to the date of his ill health retirement with no actuarial reduction for early receipt, and this benefit was also to be enhanced in respect of a further period of deemed pensionable service to the date he would normally have retired on. Mr Williams’ normal retirement age under the scheme would have been 67 and he therefore received an enhancement of over 28 years. The enhancement was calculated on the basis that he would have worked part-time to his normal retirement date.

Mr Williams claimed that this approach to his pension benefits was discriminatory because it treated him unfavourably because of something arising in a consequence of his disability, contrary to section 15 of the Equality Act 2010. He argued that he had only been working part-time because of his disability, and that the enhancement should be calculated on the basis of the full-time equivalent salary. He compared his situation to a person who worked full-time and then suffered a heart attack or stroke. Such an individual would seek ill-health retirement with immediate effect, without suffering a gradual deterioration of their condition resulting in first taking on part-time hours, and only later becoming unable to work like Mr Williams had.  Mr Williams was successful at the Employment Tribunal but the decision was reversed on appeal to the Employment Appeal Tribunal. Mr Williams then appealed further to the Court of Appeal. There he  argued that  that the advantageous treatment he had received by way of receipt of the pension enhancement should still be regarded as  “unfavourable” in circumstance where it would have been more advantageous had the disability arisen more suddenly.  If Mr Williams’ argument was accepted, the university would have had to show that their treatment of Mr Williams was a “proportionate means of achieving a legitimate aim;” in this case, to enable them to provide employees with affordable pension benefits

The Court of Appeal unanimously rejected Mr Williams’ arguments. It stated that a disabled person is not treated “unfavourably” merely because the advantage they receive is not as great as that a person with a different disability or medical history would have received. Furthermore, the fact that Mr Williams was working part-time because of his disability was not sufficient to establish disability discrimination. If it were, this could have absurd results.  The Court gave an example of a disabled person who was only able to work part-time as a consequence of their disability asking for a full time salary, as the reason they were not working full-time was their disability. If Mr William’s position was correct this would place the onus on the employer to establish that only paying a part-time salary was justified The Court concluded that this could not have been the intention of Parliament.

Comment

The Williams case will reassure employers and trustees who provide enhanced benefits to employees who cannot continue to work due to health problems that they are not at risk of treating these individuals ‘unfavourably’ if the scheme rules result in more favourable outcomes for those with certain health conditions than for those with others and crucially that it is legitimate to calculate ill health retirees benefits on the basis of their part –time pensionable earnings. The significant issue of general application is that treatment which is advantageous will not be regarded as “unfavourable” simply because it could have been more advantageous.

Same-sex Pension Benefits

In Walker v Innospec Ltd, the Supreme Court clarified an issue which has been outstanding for many defined benefit pension schemes since 2012. The case concerned Mr Walker, who worked for Innospec for 23 years until he took early retirement in March 2003. Mr Walker entered into a civil partnership with his partner of 12 years in 2005 and the pair subsequently converted their civil partnership into a marriage. Mr Walker sought clarification from Innospec as to whether his spouse would receive the spouse’s pension under the scheme. Innospec refused, on the grounds that Mr Walker had accrued his pension entitlement prior to the date when civil partnerships became legal in 2005.

Mr Walker made a claim for discrimination on the grounds of sexual orientation. He argued that paragraph 18 of schedule 9 of the Equality Act 2010 was incompatible with the EU Equal Treatment directive, because it allowed unequal treatment of same-sex and heterosexual couples in relation to pension benefits, where these had accrued prior to the coming into force of the civil partnership legislation. Although Mr Walker was successful before the Employment Tribunal, this decision was overturned by the Employment Appeal Tribunal, and the Court of Appeal also found against him. However, the Supreme Court upheld Mr Walker’s appeal, and in a landmark judgement, held that paragraph 18 is incompatible with the Equal Treatment Directive and must be disapplied.

Innospec had argued that the ‘retrospective application’ rule should be applied to the case. In essence, this means that changes to the law should not apply retrospectively, unless this is expressly provided for by the legislation. The reason for this is so that there is certainty that no one will in future be held to have breached a law that was not in force at the time they carried out the act. However, this rule only applies to protect situations which are in the past. Generally speaking, situations which are either ongoing or in the future will be affected by the change in the legislation. It was Innospec’s contention that, because Mr Walker had accrued his pension rights before the Civil Partnership Act became law, his spouse could not claim the spousal pension as the act of accrual was fixed and in the past.

Mr Walker successfully persuaded the Supreme Court that the discriminatory act would occur at the moment the pension fails to be paid, rather than when it was being accrued. Since Mr Walker had survived the introduction of the civil partnerships, provided that he remained married to his husband and that his husband survived him, the spousal pension would be due to be paid to him. The Supreme Court noted that, if Mr Walker had married a woman instead, she would have become entitled to the spousal pension, notwithstanding the fact that they were not married while he was paying contributions into the fund.

Comment

This judgement will provide clarity for any schemes which have yet to equalise benefits for same-sex partners. In reality, this is most likely to affect public sector schemes as most other schemes will have carried out this exercise already; however, employers and trustees of schemes which have not equalised their benefits should act now to ensure that this is done.

In coming to opposite decisions on the discrimination arguments in the above cases the appellate  courts have grappled with some incredibly complex  concepts  which are likely to have significant implication for employment and pensions law going forward but for many the decisions may simply be regarded as the just outcomes  for the individuals and employers concerned.

If you have any questions or concerns about the pension scheme you provide for your employees or any discrimination issue, please do not hesitate to contact a member of the Stronachs Employment Team.

Annika Neukirch, Solicitor

 

Chambers UK 2106

Contact Info

ABERDEEN OFFICE
28 Albyn Place, Aberdeen AB10 1YL
Tel: +44 1224 845845

 

INVERNESS OFFICE
Camas House, Pavilion 3, Fairways
Business Park, Inverness IV2 6AA
Tel: + 44 1463 713225

The Legal 500 logo