Home Knowledge Age-related Pension Contributions – Objectively Justified

Age-related Pension Contributions - Objectively Justified

November 6, 2013

A claim was taken against a company by a former employee on the grounds that the company’s payment of age-related contributions to its DC scheme was unlawful age discrimination.  Under the employee’s contract, contributions payable to the scheme were dependent upon age as follows:

  • Under 35 years: employee 3%, employer 6%
  • From 35 to 44 years: employee 4%, employer 8%
  • Over 45 years: employee 5%, employer 10%

The Danish court referred the case to the EU Court of Justice and one of the issues which fell to be decided was whether the differences could be justified under the Equal Treatment Directive 2000.  This Directive provides that a difference in treatment on grounds of age does not constitute discrimination if, within the context of national law, it is objectively and reasonably justified by a legitimate aim and if the means of achieving that aim are appropriate and necessary.

The Court was satisfied that the following reasons given for the age-related contributions may be regarded as legitimate:

  • Higher contributions for older workers enable those who enter employment at a later stage in their working life to build up reasonable retirement savings over a relatively short period.
  • Lower contributions for younger workers allow them to have at their disposal a larger proportion of their wages.
  • The cost of covering the risks of death, incapacity and serious illness increases with age, thereby justifying higher contributions for older members.

The Court held that it is for the Danish court to determine whether the age-related contributions attain those aims in a “consistent and systematic manner” while ensuring that they do not go beyond what is necessary to achieve them.

While the Irish Pensions Act specifically permits age-related pension contributions to a DC scheme (provided that they are an appropriate and necessary way to achieve a legitimate objective), this judgment provides some welcome reassurance to employers and trustees that it would be difficult to successfully challenge age-related contributions where they can be objectively justified.

Contributed by Mary Greaney and Lorna Osborne.