UK Pensions - Employment Appeal Tribunal decisions in age discrimination cases

The Employment Appeal Tribunal (EAT) has handed down its judgment in two age discrimination cases, Ministry of Justice v McCloud and Sargeant v London Fire and Emergency Planning Authority, which will be of interest to employers and trustees. Both cases are about transitional provisions which applied on the introduction of new career average public sector pension schemes in 2015. The EAT decisions have reconciled the conflicting Employment Tribunal (ET) decisions in these cases, but further litigation is expected before the position is fully resolved.

Facts

New career average public sector pension schemes were introduced in 2015 for (amongst others) judges and firefighters, replacing the old final salary pension schemes. Transitional provisions applied on the introduction of the career average schemes which, for the judges, meant that:

  • active members who were born on or before 1 April 1957 had full protection – they remained entitled to continuing active membership of the final salary scheme;
  • active members who were born between the 2 April 1957 and 1 September 1960 were entitled to tapering protection – they would cease to be active members of the final salary scheme and become members of the career average scheme on a date between 31 May 2015 and 31 January 2022; and
  • active members who were born after 1 September 1960 were not entitled to any protection – they ceased to be active members of the final salary scheme and became members of the career average scheme on 1 April 2015.
    The transitional provisions for the firefighters were very similar.

In both cases, the members who were not entitled to any protection claimed age discrimination.

Issue

In both cases, it was accepted that the younger judges and firefighters had been treated less favourably than the older members who had full or tapering protection because of their age. On the face of it, there was therefore age discrimination. The question was whether the transitional provisions were a proportionate means of achieving a legitimate aim. If they were, there would be no age discrimination.

Employment Tribunal decisions

The ET decided in the judges’ case that the government had failed to show its treatment of the claimants was a proportionate means of achieving a legitimate aim. In particular, the ET found that:

  • there was no rational explanation for the government’s formulation of the legitimate aim (“to protect those closest to retirement from the financial effects of pension reform”) because the older members were actually the least adversely affected by the reforms;
  • whilst the pursuit of consistency across the public sector could be a legitimate aim, the government had failed, beyond mere generalisations, to demonstrate how consistency in this case was capable of contributing to its social policy objectives; and
  • the transitional provisions were not a proportionate means of achieving the government’s aims, given the extremely serious adverse impact they had on the value of the claimants’ pensions.

By contrast, a differently constituted ET decided in the firefighters’ case that the treatment of the claimants was a proportionate means of achieving a legitimate aim. In particular, the ET found that:

  • the government had demonstrated the following legitimate aims: to protect those closest to retirement age from the effects of the pension reform; to take account of the greater legitimate expectation that those closer to retirement would have that their pension entitlements would not change significantly when they were close to retirement; to have a tapering arrangement so as to prevent a cliff edge between fully protected and unprotected groups; and to achieve consistency across the public sector; and
  • the transitional provisions were a proportionate means of achieving the government’s aims – a line has to be drawn at some point and the place where the line is drawn is a matter of social policy choice.
Employment Appeal Tribunal decisions

The EAT has now decided in the judges’ case that the ET was wrong to conclude that the government had not established a legitimate aim. This was because the ET had failed to take into account “a complex of moral and political” reasons as revealed by “a plethora of documentation from different sources”. However, the ET’s decision on the question of proportionate means could not be faulted. As a result, the decision that the government had failed to show its treatment of the claimants to be a proportionate means of achieving a legitimate aim was correct.

In the firefighters’ case, the EAT has decided that the ET was right to conclude that the government was pursuing legitimate aims. However, the ET failed to apply the correct level of scrutiny in considering whether the transitional provisions were a proportionate means of achieving the government’s legitimate aims. The case will therefore be returned to the ET for consideration of whether the transitional provisions were a proportionate means of achieving the legitimate aims of the government.

Comments

The conflicting decisions of the ET in these cases had given rise to uncertainty about whether this type of transitional arrangement was discriminatory. The EAT has now reconciled this conflict. In both cases, the EAT accepted that the government was pursuing legitimate aims. However, in the judges’ case, the transitional provisions were not a proportionate means of achieving those aims and were therefore discriminatory. In the firefighters’ case, the question of whether the transitional provisions were a proportionate means of achieving the government’s aims will now be considered afresh by the ET. We understand that the government intends to appeal both cases, so a final resolution may be some way off.

The implications of a finding of age discrimination are potentially significant for the government: in a worst case scenario, it could be required to allow all members to stay in active membership of the final salary schemes for a further period. Any private sector employers and trustees who have implemented similar transitional provisions will be keen to watch this space, although it is worth noting that the outcome could be different for private sector employers.

Employers and trustees considering benefit changes in the future should also consider carefully before putting in place transitional protections which exempt particular groups of members from the changes.