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03/02/2012 - Can employers stop providing pension contributions to employees over the age of 65?

On 1 October 2011 the Equality Act 2010 was introduced setting out new discrimination legislation and 1 April 2011 saw the abolition of the Default Retirement Age which allowed for employers to have a default retirement age without being age discriminatory. These two pieces of legislation have since clouded the position in respect of employers' requirements to provide pension contributions to employees over the age of 65 years old (the current State pension age).

Since the abolition of the default retirement age, many employers have found themselves in a situation whereby an increasing number of employees are working past 65. This has raised the question as to whether or not an employer is required to continue to make contributions towards an employee's pension (as they have previously done) once they reach 65. What is more, is it discriminatory to stop providing pension contributions to those employees over 65?

So can an employer stop providing any type of benefit to an employee over the age of 65?
The Employment Equality Regulations 2011 (the "Equality Regulations”) specifically provides that it is not unlawful age discrimination for employers to withdraw "insurance or a related financial service” benefits from employees over 65 (or the state retirement age), which is deemed to include income protection, life assurance and medical cover. However, the Equality Regulations do not provide that it is not unlawful age discrimination for employers to stop providing pension contributions to employees over the age of 65.

Where does this leave an employer when deciding whether to continue paying pension contributions to employees over the age of 65?
Considering that the Equality Regulations do not specifically allow for employers to stop providing pension contributions to employees over the age of 65, it is most likely that it will amount to age discrimination where an employer does not provide pension contributions to an employee over 65. Therefore, there is a real risk that an employee may make a claim to an Employment Tribunal for age discrimination and it may be successful.

The Equality Act (Age Exceptions for Pensions Schemes) Order 2010 permits certain exemptions to occupational schemes that will not be regarded discriminatory. The Order provides for a minimum and maximum age for admission to the occupational scheme to be set, usually by the pension provider. Therefore, if an employee, who is not already a member of the pension scheme and is older than the upper age for admission, wishes to join the scheme, it will not be discriminatory for that employee to be exempt from joining the scheme. However, if an employee already works for an employer and was previously provided with pension contributions prior to reaching the age of 65, it is anticipated that it will be discriminatory not to continue contributing towards the pension if the scheme itself permits contributions over the age of 65.

There is an argument to suggest that employers may not have to continue to make contributions to a pension scheme where their reasons for doing so can be objectively justified. However, the reason for an employer not wanting to continue to make contributions is likely to be based on costs and objective justification cannot be based on the reason of cost alone. Therefore, it is felt that it will be very difficult for employers to objectively justify any reasons as to why they are no longer making contributions leaving this approach as a risky strategy.

It is worth noting that where employers do not have a company pension scheme and pay into a stakeholder pension, there is no age ceiling on contributions being made into a stakeholder pension. Therefore, contributions will continue to have to be made unless the employer can objectively justify not making the contributions.

There have been very few cases to test the law in respect of withdrawing pension contributions to employees over the age of 65, so it is recommended that employers tread very carefully before withdrawing pension contributions to employees over the age of 65 in order to avoid claims of unlawful age discrimination.

Action points:

• If you operate a company occupational pension scheme, you will need to check with the provider whether there are any age restrictions on continuing to make contributions.
• Consider whether you can objectively justify stopping making contributions within your business.
• Review the business budget to provide for the increase cost of pension contributions for those over the age of 65.
• Update retirement policy to remove a default retirement age (unless it can be objectively justified).
• Seek legal and/or pension advice where you are considering the withdrawal of pension contributions to those over the age of 65.
  

Authored by:

Catharine Geddes (show profile)

Published by:

Allison Grant (show profile)

Article type:

News (show all News)