Trustees of the Uppingham School Retirement Benefit Scheme for Non-Teaching Staff and another v Shillcock [2002] EWHC 641 (Ch)

What is an integrated pension scheme? Integration refers to the design of pension scheme benefits to take into account all or part of the state scheme benefits that the member is deemed to receive. In other words, the pension scheme will reduce the amount of pension it pays to take account of the basic state pension or SERPS.

They can also restrict membership of the scheme to workers earning more than the Lower Earnings Limit (LEL) which is the access point for national insurance contributions. 38% of private sector final salary pension schemes (covering 54% of members) integrate benefits with the state scheme.

The difficulty with the schemes is that they tend to disadvantage women and part-timers. Statistically, women earn less than men which firstly means they may not earn enough to join the occupational pension scheme and if they do, they will receive proportionately less from the scheme because of integration whilst their contributions to the pension scheme are not similarly integrated.

The Uppingham School Retirement Benefit Scheme for Non-Teaching Staff ('the Scheme') is an integrated scheme. Employees are eligible to join the Scheme only if they earn an annual salary in excess of the lower earnings limit, i.e. the limit for Class 1 National Insurance contributions specified in accordance with s1 of the Social Security Pensions Act 1975. In addition, employees who are admitted to membership of the Scheme accrue benefits in respect of annual salary less a deduction equal to the lower earnings limit.

Mrs Shillcock complained to the Pensions Ombudsman that she had been excluded from membership of the Scheme in circumstances which amounted to indirect sex discrimination. The Pensions Ombudsman upheld Mrs Shillcock's complaint.

On appeal, the High Court found that there was no indirect discrimination as there was no relevant difference in treatment; and furthermore that even if there was that difference was objectively justified.

A relevant difference in treatment

The Court held that, applying the decision of the House of Lords in Barry v Midland Bank plc [1998] 1 All ER 805, [1998] IRLR 138, the correct question in terms of sex discrimination was whether there was a relevant difference in treatment between those earning more, and those earning less, than the lower earnings limit. The Court had regard to the purpose of the deduction of the lower earnings limit: 'to achieve a broad integration between benefits under the Scheme and the provision of the state pension'. Having regard to this purpose, there was no relevant difference in treatment.

The Court also held that as the deduction applied equally to all employees, it was not discriminatory. Where the method used is not discriminatory 'one sex cannot object that they would have done better against the other if a different method had been employed'.

The decision of the High Court highlights the inadequacies of the decision of the House of Lords in Barry. In that case, the House of Lords considered whether a payment made under a severance scheme was indirectly discriminatory. The severance scheme only took into account salary at the date of termination, rather than salary throughout the employment. Ms Barry's hours had changed from full to part time and the calculation of contractual redundancy payments took no account of her long service as a full time worker and was calculated only on her part-time hours at the date of redundancy. The House of Lords held that as the severance scheme treated both men and women in exactly the same way, there was no relevant difference in treatment.

However, on any understanding, indirect discrimination allows the same treatment of two groups to be challenged if that treatment has a disparate impact. In Barry, the fact that the same rule was applied to all employees, both part-time and full-time, was used as a reason for holding that there was no difference in treatment. Surely, though, the existence of a rule that applies equally i.e. one that does not discriminate directly, is the very essence of an indirect discrimination claim?

The House of Lords were also concerned, in deciding whether there was any difference in treatment, with the purpose of the payments made under the severance scheme. As the purpose was to cushion the effects of loss of employment, the Court considered that it was not indirectly discriminatory for the Scheme to ignore the previous full time service of an employee who was part time at the time of the termination. Again, it seems strange that the subjective purpose of a payment is taken into account at the initial stage of establishing whether there is a difference in treatment rather than at the final stage of deciding whether the treatment in question was objectively justified.

Objective justification

In the light of its conclusion on the existence of discrimination, it was not strictly necessary for the Court to look at the issue of whether the policy was objectively justified. However, the Court held that the policy of the Scheme was that it was sufficient that all employees had the opportunity to accrue a state pension, rather than a pension under the Scheme, on earnings equal to, or less than, the lower earnings limit. The fact that the policy applied irrespective of whether employees actually chose to make such contributions did not render that policy illegitimate. To leave it to those earning below the lower earnings limit to decide whether to make Class 3 contributions to the state pension scheme, or whether to make no contributions, and to ensure such employees could not have a double pension in respect of such earnings, was not illegitimate.

Conclusion

No further appeal will be made, but it seems unlikely to be the end of this issue. Although the reasons advanced by the High Court are consistent with the reasoning of the House of Lords in Barry, it is strongly arguable that they are contrary to the jurisprudence of the European Court of Justice. Many trade unions are campaigning against integration (clawback) and an Early Day Motion in the House of Commons calling for its abolition received significant support in 1999.