As pension scheme benefits are by their very nature age related, it is important that employers and trustees carefully consider the impact of relevant age discrimination legislation and assess whether their pension scheme is compliant. Failure to address age discrimination could prove a costly mistake. Pension schemes cannot discriminate on age grounds unless expressly permitted. Direct discrimination occurs where one person receives less favourable treatment than another, based on the fact that they are different ages: for example, if a company says that employees have to be 30 or over to join the pension scheme.

Indirect discrimination occurs where an apparently neutral rule disadvantages one category of persons compared to others.

The Pensions Act 1990 provides for various exceptions to the rule against discrimination on the grounds of age. Some are blanket exceptions (such as fixing age as a condition for admission to a scheme provided no gender discrimination arises), while others are permitted as long as they are objectively justifiable.

It is possible to fix age or length of service or a combination of both as a condition for a particular level of contribution under a defined contribution scheme, either individually or for groups. However, it is important to note that such treatment will only be permitted where 'in the context of the relevant employment, to do so is appropriate and necessary by reference to a legitimate objective of the employer'.

So a pension scheme can provide that employees aged between 30-45 will receive an employer contribution at the rate of 5% of basic salary, whereas employees aged between 46-60 will receive an employer contribution at the rate of 10% of basic salary, provided this practice can be objectively justified. The issue of objective justification is complex. There is little Irish case law on this point in the context of pension benefits but some guidance can be gleaned from European and Irish employment cases.

The Pensions Act 1990 contains specific examples of a 'legitimate aim' but others may include the need to reward experience or loyalty, the need to reduce turnover of staff, or economic and administrative reasons. However, different collective bargaining processes or cost alone are unlikely to be a defence to a claim of age discrimination. It is likely that an employer will need to rely on a number of potential legitimate objectives to justify the practice of age-related contributions in a defined contribution scheme. It is important to note that once a claimant has established a prima facie case of discrimination, it is up to the employer to disprove it.

It is clear that there is a risk in operating a defined contribution scheme with age-related contributions. If you are an employer or a trustee of a scheme that has an age-related feature, you ought to assess carefully where problems are most likely to arise and be ready with the arguments to defend potential claims. Our clients have found that taking a proactive approach at an early stage saves time and money in the event of a claim.

If an employee successfully claims that a pension scheme discriminates on the grounds of age, then the employer will have to provide appropriate redress.

For further information please contact Gillian Dully.