Age-graduated Pension Schemes do not conflict with EU Law
23 October 2013
Age-graduated pension schemes are in compliance with EU Law. This was established by the European Court of Justice by judgment of 26 September 2013.
The case involved an employer who had an occupational pension scheme which was mandatory for all employees. The employees themselves paid one-third of the pension contribution whereas the employer paid two-thirds. The contributions were fixed as part of the base salary and were graduated depending on which of three age groups the employees belonged to.
The age groups were (i) under 35 years, (ii) 35-44 years and (ii) over 45 years, and the graduated contributions were fixed at 3 per cent for the employee and 6 per cent for the company, at 4 per cent for the employee and 8 per cent for the company and 5 per cent for the employee and 10 per cent for the company, respectively.
A 29-year old employee argued that the age-graduated scheme constituted an act of discrimination due to age and had thus taken legal proceedings before the Danish courts. In connection with the case, the Danish Western High Court decided to refer a preliminary question to the European Court of Justice.
Initially, the European Court of Justice established that the age-graduated pension scheme was an act of age discrimination.
The European Court of Justice was first of all to consider whether the discrimination fell within the scope of the derogation provision of Article 6(2) of the Employment Equality Directive pursuant to which the prohibition against age discrimination must not prevent the establishment of age limits in regard to occupation-associated social security schemes in so far as it does not result in gender discrimination.
However, contrary to the Advocate General, the European Court of Justice did not find that the age-graduated pension scheme was comprised by the derogation provision in that it did not as such establish an age limit in regard to access to the pension benefit. The Advocate General's suggestion for a decision has previously been mentioned in our Newsletter of April 2013 [indsæt link].
Thereafter, the European Court of Justice was to consider whether the discrimination fell within the scope of the derogation provision of Article 6(1) of the Employment Equality Directive pursuant to which the government can allow age discrimination if it is objectively and reasonably founded in a legitimate purpose and if the means chosen are appropriate and necessary.
The European Court of Justice found that the purposes on which the age-graduated pension scheme in the specific case was based were generally to be considered legitimate.
Moreover, the European Court of Justice found that the principle of prohibition against age discrimination was to be interpreted to the effect that it does not prevent an employer from paying age-graduated pension contributions as part of the salary, provided that the consequent unequal treatment due to age is appropriate and necessary in order to achieve a legitimate purpose. In this connection, the European Court of Justice pointed out that it was for the Danish Western High Court to review whether the age-graduated pension contributions in the specific case were appropriate and necessary.
The judgment shows that employers may graduate contributions in terms of age for an occupation-related pension scheme as part of the salary without this constituting an act of unlawful age discrimination.
The age groups were (i) under 35 years, (ii) 35-44 years and (ii) over 45 years, and the graduated contributions were fixed at 3 per cent for the employee and 6 per cent for the company, at 4 per cent for the employee and 8 per cent for the company and 5 per cent for the employee and 10 per cent for the company, respectively.
A 29-year old employee argued that the age-graduated scheme constituted an act of discrimination due to age and had thus taken legal proceedings before the Danish courts. In connection with the case, the Danish Western High Court decided to refer a preliminary question to the European Court of Justice.
Initially, the European Court of Justice established that the age-graduated pension scheme was an act of age discrimination.
The European Court of Justice was first of all to consider whether the discrimination fell within the scope of the derogation provision of Article 6(2) of the Employment Equality Directive pursuant to which the prohibition against age discrimination must not prevent the establishment of age limits in regard to occupation-associated social security schemes in so far as it does not result in gender discrimination.
However, contrary to the Advocate General, the European Court of Justice did not find that the age-graduated pension scheme was comprised by the derogation provision in that it did not as such establish an age limit in regard to access to the pension benefit. The Advocate General's suggestion for a decision has previously been mentioned in our Newsletter of April 2013 [indsæt link].
Thereafter, the European Court of Justice was to consider whether the discrimination fell within the scope of the derogation provision of Article 6(1) of the Employment Equality Directive pursuant to which the government can allow age discrimination if it is objectively and reasonably founded in a legitimate purpose and if the means chosen are appropriate and necessary.
The European Court of Justice found that the purposes on which the age-graduated pension scheme in the specific case was based were generally to be considered legitimate.
Moreover, the European Court of Justice found that the principle of prohibition against age discrimination was to be interpreted to the effect that it does not prevent an employer from paying age-graduated pension contributions as part of the salary, provided that the consequent unequal treatment due to age is appropriate and necessary in order to achieve a legitimate purpose. In this connection, the European Court of Justice pointed out that it was for the Danish Western High Court to review whether the age-graduated pension contributions in the specific case were appropriate and necessary.
The judgment shows that employers may graduate contributions in terms of age for an occupation-related pension scheme as part of the salary without this constituting an act of unlawful age discrimination.
