Retrospectively equalising to diminish benefits ruled discriminatory

11 / 12 / 2019

Safeway Ltd v Newton

Readers may recall the Safeway case on equalisation. See Clive’s Ready Reckoner where he commented on the decision of the Court of Justice of the European Union (“CJEU”). We consider the case and its implications in further detail below.

In October 2019, the CJEU ruled that occupational pension schemes cannot equalise benefits retrospectively so as to diminish benefits to that of the sex that is treated less favourably, even when the scheme’s trust deed and rules permit the diminishing of benefits retrospectively. The scheme’s circumstances were relatively unusual in this case as many schemes typically reserve special protections for members’ past service benefits. Furthermore, overriding UK law that prohibits the retrospective worsening of benefits under section 67 of the Pensions Act 1995 was not in effect at this time as the relative period in question preceded 6 April 1997.

It has been known since the 1991 case of Barber v Guardian Royal Exchange Assurance, that the principle of equal pay for men and women applies to occupational pension schemes. Prior to that judgment, retirement ages to occupational pension schemes could be different. However, following that judgment, benefits have had to be equalised between men and women in respect of pensionable service on and from 17 May 1990. Where a scheme is less favourable to one sex, the scheme must be modified in accordance with the scheme’s amendment power so as to be no less favourable to that sex. This must be on the basis that the benefits for the sex who is treated less favourably are “levelled up” to match the benefits of the sex who is treated most favourably up to the date that the scheme is amended (this period is known as the “Barber Window”).

After the Barber Window has closed, benefits can be levelled up or down. Many schemes have provided equal benefits on the basis of the least advantaged sex so as to minimise scheme liabilities.

Accordingly, Safeway Ltd and the Safeway Pension Trustees informed the members, by way of an announcement made on 1 September 1991, that the scheme would be amended with effect as of 1 December 1991. Several years later on 2 May 1996, a trust deed purported to amend the scheme to equalise benefits with retrospective effect from 1 December 1991. The trust deed governing the scheme permitted retrospective amendments to be made as of the date of a trust deed (not by written announcement to members). Safeway Ltd argued that in the absence of any expression under Article 119 of the EC Treaty (now Article 141 EC) it should be permissible to retrospectively equalise benefits to the least favourable sex in accordance with the scheme’s governing provisions. At stake was approximately £100million of scheme liabilities if benefits had to be provided for at the alternative level.

In March 2019, the Advocate General opined that the Barber Window applies under EU law whether or not the scheme rules permit retrospective adverse amendments. On this basis, the amendment could not have retrospective effect back to 1 December 1991, even where purported to have been effected by deed in accordance with the scheme’s amendment power. Agreeing with the Advocate General’s opinion, the CJEU nevertheless held that it is possible for measures seeking to end discrimination contrary to EU law to, exceptionally, be adopted with retrospective effect provided that those measures are in fact warranted by an overriding reason in the public interest (although no information was presented to establish this in the case).

By implication of the unusual circumstances surrounding this case, it remains to be seen the extent to which the judgment might impact other schemes, unless the specific circumstances happen to apply. Consequently, there would only be very exceptional circumstances (if any) in which an overriding reason in the public interest would apply to objectively justify a retrospective adverse amendment.

The case will be remitted back to the UK Court of Appeal to apply the CJEU judgment.