Age-Related Defined Pensions Contributions Can Be Objectively Justified

The European Court of Justice (“ECJ”) has recently ruled that an Employer can lawfully make different rates of contributions to a defined contribution occupational pension scheme by reference to the age of the Employee in question, and successfully defend a claim of age discrimination.

The European Court of Justice (“ECJ”) has recently ruled that an Employer can lawfully make different rates of contributions to a defined contribution occupational pension scheme by reference to the age of the Employee in question, and successfully defend a claim of age discrimination.

In HK Danmark v Exeperian A/S, the Employer made varied rates of pension contributions by reference to an Employee’s age.

The Claimant became a member of Experian’s pension scheme at the age of 29, and so was in the lowest contribution bracket. Higher Employer contributions were made to those between the ages of 35 and 44, and higher rates again for those over the age of 45. Similarly, the Employee contributions were also based on a stepped basis, meaning that those over the age of 45 were required to themselves to make higher contributions than their younger colleagues.

After the Claimant had resigned, she claimed repayment of Employer contributions at the (higher) rates that were payable to employees over the age of 45, on the basis that the contributions made to those under the age of 45, herself included, contravened anti-discrimination legislation.

Putting to one side the complex jurisdictional issues surrounding the scope of the EU Framework Directive on equal treatment, it was held that it would not be discriminatory for an Employer to make higher pension contributions to older Employees, so long as the difference in treatment was appropriate and necessary to achieve a legitimate aim. This would be a matter to be decided by the National court in question.

Here, it was thought that there could be a legitimate aim of paying higher contributions to older Employees in order to ensure that these individuals saved money for retirement quicker, as their retirement was approaching sooner than that of younger employees who in effect, had more time on their side.

However, it would be for the National courts to determine whether the measures imposed were proportionate and did not go beyond what was required to protect that legitimate aim. The ECJ also ruled that regard should be had to the fact that the contributions required from younger Employees, was lower than those required from older Employees.

The case will no doubt offer reassurance to UK Employers who pay higher pension contributions for older Employees, though it would be easy to read too much into the ECJ’s findings. Much will depend on the specific circumstances at hand and crucially, the interpretation of the UK Courts in assessing whether the Employer is doing no more than is reasonably necessary to objectively justify a legitimate aim.