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Part-Time Workers - Equal Treatment & Occupational Pension Schemes
The content of this page is based on our understanding of how pensions worked before A-Day, the 6 April 2006, and is provided for reference only.
On the 24 July 2003 the Department for Work and Pensions issued a draft consultation on equal treatment regulations relating to part-time workers and occupational pensions. The closing date for the consultation was the 15 October 2003.
This analysis details the main changes as result of the draft regulations and the potential impact this will have on occupational pension schemes. A summary of equal treatment legislation to date is also included in an Appendix.
The main objective of these regulations is to bring UK legislation into line with European law by amending the Equal Pay Act 1970, The Pensions Act 1995 and the Occupational Pension Schemes (Equal Treatment) Regulations 1995. The regulations reflect the rulings of the European Court of Justice (ECJ) and the House of Lords in the Preston & Others v. Wolverhampton Healthcare N.H.S. Trust & Others (The Preston Case).
Background
Mrs Preston, a part-time worker, was not allowed to join her employer's occupational pension scheme as it was open only to full-time employees. Her case was referred to the ECJ by the House of Lords as a leading test case (there were 10 other claims). The ECJ ruled on 16 May 2000 that, under article 141 (previously 119), she should have been given access to the scheme. This meant that Mrs Preston was entitled to full membership rights and that membership could be backdated.
The House of Lords were then asked to rule on two key points arising from the ECJ rulings given in Preston and another case - Fletcher & Others v. Midland Bank Plc. The final judgements were given on 8 February 2001:
- At the time, the limit for claims was 6 months from the end of each contract of employment where the employee had left employment. This was an issue for those employees who were on fixed term, regularly renewed contracts as a claim would have to be made within 6 months of the end of each separate contract period.
The Lords ruled that the time limit of 6 months should apply at the end of the last contract period so that only one claim would have to be made.
- The extent of retrospective membership was just 2 years at the time.
The Lords ruled that membership could be backdated to 8 April 1976 (a date set in a previous ECJ case - Defrenne) or the date employment started, if later. However the Lords also ruled any compulsory member contributions due during the period of backdated membership would have to be paid. The Department of Trade and Industry (DTI) also amended regulation 8 of the Part-time Workers (Prevention of Less Favourable Treatment) Regulations (SI 2000/1551) last year to remove the two-year limit for awards made by employment tribunals.
What impact will this have on Occupational Pension Schemes?
Number of claims
The Government Actuary’s Department (GAD) has estimated that there are around 50,000 cases waiting to be settled. Of these, a large number are against public service schemes, primarily the Local Government and NHS schemes. There are also claims for people who had some part-time service during which they were not allowed admission to their employer’s pension scheme and who are still in relevant employment. GAD has estimated future claims could number around 150,000 in the public sector and 200,000 in the private sector.
Business costs
GAD estimates the additional cost to schemes for providing additional pension benefits to successful claimants is on average in the region of £8000, of which £6,000 might be contributed by employers.
The GAD estimate for the total business costs of the regulations is £3.25 billion including employee contributions, but excluding administration and other costs. This covers both potential claims for those still in employment and the 50,000 claims already lodged with Employment Tribunals. The estimates also assume that everyone who may be entitled to retrospective service does make a claim. But the estimates do not take into account any refunds of National Insurance Contributions payable from the National Insurance Fund. Such refunds will reduce the overall cost to employers by an estimated £300m and employees by an estimated £100m for occupational schemes that are, or have been contracted out of SERPS/S2P.
Administration costs
Schemes granting retrospective membership rights will incur administrative costs associated with reinstating these rights. Including: -
- the cost to a scheme for setting up a new membership record, where the individual claims retrospective membership and is not currently a member
- the on-going cost of administering this new record
- for both new and existing members, the cost of calculating what contributions should have been paid over the period of backdated access depending on their length of service, salary and contribution rates; and
- the cost of any additional actuarial advice that is needed.
The average administration cost is estimated at £50 - £200 for each claim for retrospective access to a scheme. Assuming all 50,000 existing claims lodged with tribunals are successful, the cost for administering these claims would be in the region of £2.5m - £10m. For the 350,000 estimated potential future claims, the amounts rise to £17.5m - £70m.
Costs to small businesses
It is unlikely that a large number of 'micro-businesses' (less than 10 employees) will have had or have an occupational pension scheme in place. Therefore the impact on these small businesses is likely to be very small.
According to data from the 2000 Employers Pension Provision Survey, around 15% of employers with 13 – 49 employees, 62% of employers with 500 – 999 employees and 80% employing 1,000 or more provide/provided an occupational pension scheme.
Therefore it is believed that many of the 50,000 cases before Employment Tribunals relate to large schemes in both the public and private sector. If this pattern continues in future then it is likely that a relatively small proportion of the above costs will fall on small employers in absolute terms.
Further Information
A copy of the IRSPSS Pensions Update 131 on Part-time Employees can be downloaded from the IRSPSS’s website using the link below:
APPENDIX - Landmark cases in UK and EU legislation - Part-Time Workers
The Treaty of Rome 1957 Article 141 (renumbered from Article 119 by the Treaty of Amsterdam)
Requires that EU Member States introduce and maintain a policy of sex equality in the workplace. This has applied in the UK since 1 January 1973.
Defrenne - ECJ, 1976
Judgement on 8 April 1976 established that Article 141 was enforceable by an individual against private parties, including employers.
Bilka-Kaufhaus - ECJ, 1986
The first case which established that pensions were covered by Article 141. The ECJ also ruled that part-time workers should not be excluded from membership of an employer’s pension scheme if the majority of them are of one sex unless the reasons for exclusion were not gender related.
Vroege - ECJ, 1994
The ECJ confirmed the Bilka-Kaufhaus judgement and further established that the right of a part-time worker to join a scheme was by reference to Defrenne, meaning that membership could be backdated to 8 April 1976.
Fisscher - ECJ, 1994
Established that backdated membership could be restricted by national laws and that in contributory schemes, employee contributions would have to be paid for the period of the backdating.
Council Directive 97/81/EC - EEC, 1997
Requires that part-time workers be treated exactly the same as full-time workers, irrespective of any gender based inequality. This Directive was adopted by the UK via section 19 of The Employment Relations Act 1999. Note that the actual regulations and their start date were not included until the coming into force of the following Statutory Instrument.
The Part-Time Workers (Prevention of Less Favourable Treatment) Regulations 2000 [SI2000/1551]
This Statutory Instrument enshrined in law the provisions of section 19 of The Employment Relations Act 1999 and therefore Council Directive 97/81/EC (see above) with effect from 1 July 2000.
The Pensions Act 1995 and the Occupational Pension Schemes (Equal Treatment) (Amendment) Regulations 2003 - Draft issued 25/07/03
The subject of this article updates UK law by amending the Equal Pay Act 1970, the Pensions Act 1995 and the Occupational Pension Schemes (Equal Treatment) Regulations 1995. The amendments bring UK legislation in line with the rulings handed down by the ECJ and House of Lords in the Preston case.
The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice.
Updated January 2004
Published 07 August 2003
For professional advisers only
