10 June 2002
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Pensions have been a relatively hot topic over the past year, with the advent of stakeholder pensions instigating a great deal of criticism of the entire pensions regime. The dual systems of state and personal pension arrangements is long due a complete overhaul. The existing measures fall short of providing effectively for retirement and impose severe financial burdens on businesses. Legislative developments are being pursued in an attempt to remedy some of the lacunae, particularly in relation to occupational pension schemes, and the judiciary has continued to rule on such schemes since last year's noteworthy decision in Preston v Wolverhampton Healthcare NHS Trust (2001).
In another significant decision relating to the application of occupational pension schemes to part-time employees, the High Court in The Trustees of Uppingham School v Shillcock (2002) ruled on an appeal against a decision by the Pensions Ombudsman. The case concerned the alleged discriminatory effect of a provision offsetting sums equivalent to the National Insurance lower earnings limit, which excluded certain employees from the benefits of the pension scheme. The long-awaited decision was a great relief to the many pensions providers that operate similar schemes.
Shillcock, who was employed part-time by a private school, brought a claim complaining that her exclusion from the pension scheme amounted to indirect sex discrimination. The scheme was a final salary scheme that no employee was eligible to join unless they earned an annual salary in excess of the National Insurance lower earnings limit. In addition, benefits under the scheme were calculated only on earnings in excess of this limit. Shillcock earned less than the lower earnings limit and so was not invited to join the scheme. She alleged indirect sex discrimination on the grounds that more female than male employees worked part-time and thus earned below the lower earnings limit.
In October 1997, the Pensions Ombudsman found that a significantly higher proportion of women employees were excluded than men and upheld the complaint. He ruled that to refuse to allow an employee earning less than the lower earnings limit to join a pension scheme and failing to pay benefits on amounts earned below that limit would amount to unlawful indirect discrimination. The Ombudsman also felt that the policy could not be objectively justified, thus raising questions as to whether pension schemes should allow for or pro-rate any lower earnings limit offsets.
On 19 April, Mr Justice Neuberger finally bore good news for state pension benefits and occupational pension schemes that aim to integrate benefits under such schemes when it delivered its long-awaited judgment in the Shillcock case.
Sitting in the High Court, Judge Neuberger allowed the appeal of the employer and the trustees, finding that the scheme was not discriminatory because it applied equally to all employees and there was no difference in treatment that was capable of establishing discrimination. Although immaterial, the court went on to consider whether the scheme's practice could be objectively justified. The High Court opined that there was nothing inherently objectionable in a scheme that sought to prevent double accrual of benefits of both a state pension and a pension under the scheme.
The judgment met with positive reactions throughout the pensions community, particularly from the vast numbers of pension schemes operating similar offsets.
Shillcock had also been denied access to death in service benefit and the court considered the issue, though it was purely academic because the claimant was alive and was no longer employed by the school. Judge Neuberger indicated that the Ombudsman had no jurisdiction to consider the issue of Shillcock's access to death in service benefit as she was not an "authorised complainant" claiming "long service benefit" under the relevant legislation.
The Pensions Ombudsman had directed that the claimant should be granted three years' backdated membership of the scheme. He found that under Regulation 5 of the Personal and Occupational Pension Schemes (Pensions Ombudsman) Regulations, complaints about acts or omissions occurring more than three years before the complaint to the Ombudsman were time-barred.
The appeal also contemplated whether Shillcock's claim of sex discrimination should have been rejected because she had not identified an appropriate male comparator performing equal work who was treated more favourably than she was.
Shillcock's claim was on the basis of indirect discrimination, but subsequent claims would now fall under the Part-Time Workers (Prevention of Less Favourable Treatment) Regulations 2000, which require benefits to be based on the 'pro rata principle'. The result in this case would probably have been the same, but pensions schemes would be advised to apply any lower earnings limit offsets for part-time workers proportionately to the number of hours worked.
Donna Moxham is employment editor at Lawtel