Pensions and Sex Equality

The Court of Appeal has removed the threat of a
significant increase in the cost of Barber window
pension in defined benefit pension schemes that provide
unreduced early retirement pensions. The decision is
widely seen as a good news for employers, trustees and
most scheme members.
A member who retires at age 60 having accrued pension
with separate normal retirement dates of 60 and 65 as a
result of sex equalisation can receive a single pension.
Pension with an NRD of 60 is paid in full; pension with
an NRD of 65 can be reduced for early payment even
where the rules say that early retirement pensions are
unreduced.
The original decision in the High Court was that such a
scheme had to pay the whole of a member's pension
unreduced at age 60, regardless of when it accrued. If that
decision had not been overturned, many schemes could
have faced significant cost increases.
The case is Foster Wheeler v Hanley.
As well as dealing with the particular issue of unreduced
early pensions, the decision is important because:
- a common approach to Barber window benefits has
received approval i.e. paying a single pension made up
of an NRD 60 element and an NRD 65 element each
of which is reduced, paid in full or increased
according to whether it is paid early, on time or late;
- it confirms that schemes have the freedom to pick
their own approach to the detail of equalising benefits
but that they should not interfere more than
necessary with the original distribution of rights and
responsibilities in their rules; and
- it leaves schemes the option of providing two
pensions (or a split pension) with NRD 60 pension
coming into payment at age 60 and NRD 65 pension
at age 65. But this would normally require substantial
rule amendments.
Ends and means
Schemes must not discriminate on grounds of sex: EU and
UK legislation are clear on that objective. But both codes
are deliberately "hands off " over the means to that end.
The Court of Appeal decision in Foster Wheeler is the most
substantial legal guidance so far about how a scheme with
a Barber window should go about equalising benefits.
(The "Barber window" is the period after the Barber
decision in 1990 when men and women's NRDs remained
unequal.)
The Court of Appeal said that schemes should work
within their rules as far as possible and any amendments
that are needed should interfere with the existing balance
of rights and obligations to a minimum.
The Court acknowledged that where a number of different
approaches would satisfy this principle, the choice of
which one is appropriate is for the scheme and depends on
its particular circumstances.
Foster Wheeler
The Foster Wheeler scheme equalised NRD at age 65 in
1993, closing its Barber window after three years. It also
chose to provide that pension taken early with consent
would be unreduced. The High Court said that because
the company had chosen to use the early retirement rule to
deliver equality, its consent for women (and so for men)
with Barber window service to retire early had to be
implied. That gave members with Barber window service
a right to take all their pension unreduced at 60. The
result was a significant windfall that the company and/or
other members would have to pay for.
Overturning the High Court, the Court of Appeal held
that creating a windfall was not "minimum interference".
Given the particular scheme rules, the correct approach
was to see NRD 65 pension drawn at 60 as a deferred
pension taken early. The rule about deferred pensions allowed
the trustees to apply a reduction. The result would be a single
pension payable at age 60, with NRD 60 pension paid in full
and NRD 65 pension reduced for early payment.
The Court said the Foster Wheeler scheme should consider
what, if any, rule amendments it would need to make to
deliver equal Barber window benefits using its deferred
benefits rule as a model.
The Court's innovative use of the deferred pension rule (for a
member drawing pension immediately on leaving) shows that
schemes have considerable freedom as they look to achieve
equality within the broad framework of their rules.
ABOUT THE AUTHOR: Justin Briggs, Burges Salmon
Burges Salmon provides legal advice to national and
international clients, individuals and organisations,
across a range of practice areas and industry sectors.