In the latest development in a line of claims relating to PPF compensation caps, this case considered the statutory exemption which provides that it is not a breach of the non-discrimination rule for the employer or trustees of a scheme to use rules or practices in relation to pensionable service before 1 December 2006 which would otherwise be age discriminatory (“the 2006 limitation”).
The Employment Appeal Tribunal (“EAT”) agreed with the Employment Tribunal (“ET”)’s reasoning that the 2006 limitation was inconsistent with general principles of EU law, but due to the European Union (Withdrawal) Act 2018 (“the Withdrawal Act”), only two members who had brought their claim before 31 December 2020 (“IP completion day” for Brexit purposes) were able to continue with it.
Since 1 December 2006, it has been unlawful for trustees and employers of occupational pension schemes to discriminate against pension scheme members on the grounds of age. This requirement was introduced as part of the UK’s implementation of the EU’s Equal Treatment Framework Directive 2000/78/EC (“the Framework Directive”).
Under the Equality Act 2010, pension schemes are subject to a “non-discrimination” rule which overrides any contradictory rules of the scheme. This is subject to the 2006 limitation in relation to age discrimination, under an Order made in 2010 (“the 2010 Order”). The 2006 limitation is based on the principle of EU law that a new law will not normally apply retrospectively, so will not apply to situations that are “permanently fixed” when the new law takes effect.
In 2017, the Walker v Innospec case successfully challenged a similar limitation that had been applied in relation to survivors’ pension rights for same-sex civil partners and spouses. This limitation purported to restrict the requirement to treat same-sex civil partners and spouses on an equal basis with opposite-sex spouses to only pensionable service on and from 5 December 2005 (the date when same-sex civil partnerships were first introduced). In that case, the CJEU found that the benefit entitlements were not “permanently fixed” until they were paid, ruling “the point of unequal treatment occurs at the time the pension falls to be paid” and “the period during which [the entitlement to benefits accrued] had nothing whatever to do with its fulfilment”.
The claimants in the case were members of the T & N Retirement Benefits Scheme (1989) (“the Scheme”), who had all left pensionable service and started to take their pension before 1 December 2006.
On 10 July 2006, the employer in relation to the Scheme entered into a company voluntary arrangement, triggering the Scheme to enter into a PPF assessment period. From that date, the benefits payable from the Scheme were reduced so that they did not exceed PPF compensation levels as they were understood at that time. In line with PPF compensation, no reduction in pension was applied to members who had already reached normal pension age (although pension increases for these members may have been restricted). Those who had not reached normal pension age were entitled to up to 90% of the value of their accrued entitlement under the Scheme, subject to a total compensation cap and restrictions on pension increases. The impact for the claimants was significant, with benefits being reduced to less than 50% of their accrued rights under the Scheme.
In September 2011, it was determined that the Scheme had sufficient assets to cover more than 100% of the PPF level of compensation (as it was then understood). The Scheme benefits were then insured at just over the PPF compensation level under a bulk annuity contract.
One of the claimants in this case, Mr Hampshire, brought a legal challenge against the PPF level of compensation. In 2019, the CJEU decided that the EU’s Insolvency Directive “requires Member States to guarantee each individual employee, without exception, compensation corresponding to at least 50% of the value of their accrued entitlement” under their occupational pension scheme (see our case summary). As a result, the PPF implemented an interim solution by providing members receiving PPF compensation with an uplift if their compensation was estimated to be below 50% of the value of their scheme benefits (“the Hampshire uplift”), but otherwise, the compensation caps continued to apply.
The trustee of the Scheme accordingly re-calculated affected members’ benefits to include the Hampshire uplift. However, the claimants still suffered significant reductions to their benefits compared to those who had reached normal pension age at the date of the employer’s insolvency. They brought further claims, including that the PPF’s compensation cap was discriminatory.
In July 2021, the Court of Appeal ruled in Hughes that the compensation cap does amount to unlawful age discrimination (see our case summary). Following that judgment, the removal of the cap on compensation required a further re-calculation of benefits for affected members of the Scheme (“the Hughes uplift”). The trustee of the Scheme accordingly began the process of implementing the Hughes uplift for affected members, including the claimants. Payments of pension arrears were backdated to 10 July 2006 (the start of the assessment period), together with interest.
The claimants argued the trustee had breached the non-discrimination rule by applying the PPF compensation cap to benefits paid from the Scheme. Although the reduction had effectively been removed by the Hampshire and Hughes uplifts, the claim related to awards for injury to feelings and additional interest on the back-payments.
Importantly, only two of the claimants (Mr Hampshire and Mr Farrell) had lodged their claim before IP completion day.
Since the claim concerned the claimants’ pensionable service which was covered by the 2006 limitation, the ET had to consider whether it had jurisdiction to hear the claim. At a preliminary hearing, the ET found it did have jurisdiction, concluding the 2006 limitation is incompatible with the Framework Directive. As a result, the ET said the 2006 limitation should be disapplied.
The Secretary of State responsible for the 2010 Order appealed that finding to the EAT on several grounds. These included that the ET’s decision breached the EU law principle of “no retroactivity”, and also that the Withdrawal Act prevented the members invoking EU law in this way.
The EAT agreed with the ET’s finding that, in accordance with Walker v Innospec, there was an ongoing relationship between the claimants and the trustee, and the claimants’ rights had not become “permanently fixed” before 2 December 2006 (the deadline for implementation of the Framework Directive). This meant that the general EU law principle of non-discrimination on grounds of age could apply to their claims, even though it was introduced on and from that date by the Framework Directive.
As Mr Hampshire and Mr Farrell brought their proceedings before IP completion day, the judge was satisfied that they could rely on the above principle and that the ET was correct to disapply the 2006 limitation in relation to their claims. However, the EAT concluded that the Withdrawal Act prevented the other claimants relying on general principles of EU law. As a result, the appeal by the Secretary of State was successful in relation to all claimants but Mr Hampshire and Mr Farrell, who are able to continue their litigation.
This decision will come as a relief to trustees. According to the EAT, the Withdrawal Act restricts the disapplication of the 2006 limitation to claims brought before IP completion day, curbing the case’s wider impact.