Back to sex and pensions again this week, but this time with regards to a successful claim for sex discrimination relating to the backdating of pension rights for part-timers.
It may not be immediately obvious how financial advisers can and should become involved in this area of advice to the financial gain of themselves and their clients but bear with me. Next week's article will bring this issue into focus.
Until a decade ago, it was the practice of almost every employer's pension scheme to exclude all part-time workers from eligibility.
Typically, the scheme's eligibility rule would include a requirement stating, for example, that members must “be in the permanent employ of the company and be contracted to work for at least 20 hours per week”. Why would employers' schemes exclude part-timers?
First, the average period of employment for part-timers is usually much lower than their full-time colleagues.
The level of pension benefits part-timers build up by the date of leaving tends to be low and the cost of administering such minimal benefits is disproportionately high.
Second, and an obvious result of the impact of the first reason, few part-timers remain with the employer until their normal retirement age. Schemes giving access to part-time workers would have to keep records of and administer huge numbers of tiny preserved pensions for many years until the eventual normal retirement date. After which, of course, tiny monthly pension cheques then have to be generated.
Finally, though other reasons may be put forward, pension schemes were originally introduced to encourage staff recruitment and retention among employees who recognise the substantial benefits their membership offers.
There is evidence that, with part-time staff, the cost to the employer of operating and funding the pension scheme has a much reduced impact on recruitment and retention. Part-timers tend not to value pension scheme membership anywhere near as much as the employer might hope.
About a month ago, these schemes received a resounding set back. A female part-time worker took her emp- loyer to court for sex discrimination as she was excluded from membership of a pension scheme which was only open to full-time workers.
She justified the sex discrimination claim on the grounds that the vast majority of part-time workers for this employer were female. To exclude part-time workers was not only discrimination against part-timers (which is perfectly legal, as such) but indirect discrimination against women.
This contravenes the provisions of Article 119 of the Treaty of Rome (which, of course, governs all European Community member states).
Her chances of success looked remote, yet she won. And the principles behind her victory have now been supported by subsequent cases, and threatened cases.
These also confirm that sex discrimination can be successfully claimed where the employer's scheme exc- ludes part-timers in a company where the majority of part-timers are male.
Quite what disproportionate numerical relationship between males and females among part-timers would indicate discrimination is unclear.
In a company where 90 or 95 per cent of part-timers are females, the discrimination issue would be clear-cut. Where the proportion is only 51 per cent, it is doubtful whether the same conclusion should be reached. But what about 60 or 65 per cent? We won't know until more marginal claims are brought and determined by the courts.
As a result of these dev-elopments, more schemes have realised that they should or must make scheme membership open to part-timerson the same basis as full-timers. A little elaboration on this point might be use-ful here. Employers can still restrict eligibility to certain classes of employee according to their job description, grade or department. What they cannot now do is to differentiate, within these eligibility requirements, between full-timers and part-timers.
I am aware of a number of schemes, with a high disproportion of males and females among part-timers, which have still not changed their eligibility rules. These schemes, without doubt, are now skating on very thin ice.
Other schemes which have complied with the indications highlighted above may feel secure in the belief that they are now fully compliant in this respect.
But they will almost certainly not at this stage have accounted for the possible (probable?) implications of a case taken to the European Court by Mrs Magorrian.
Mrs Magorrian was a qualified mental nurse with the status of mental health off-icer employed by Eastern Health and Social Services.
Having started a family, she became a part-time worker although this only reduced her working hours from 37 per week to 31. This resulted in the loss of her MHO rank. In October 1992, she retired aged 60, with nine years of full-time service and 11 years part-time.
Although Mrs Magorrian received benefits from the Health and Personal Social Services superannuation scheme, her part-time status meant there were additional, by no means insignificant, benefits to which she was not entitled. Anyone who has worked as an MHO for 20 years and who had passed the age of 50 had subsequent service doubled for the calculation of their pension. They also had the right to take a pension at the age of 55 rather than, as normal, at 60.
Before she retired, Mrs Magorrian made a complaint to an industrial tribunal arguing that the additional benefits had been denied her as a result of sex discrimination. This complaint was made on the basis that, by discriminating against part-timers, her employer was indirectly discriminating against females.
At first sight a layman might have believed that Mrs Magorrian had a very slim chance of success. The pension scheme had taken into account her employment status and the hours she worked, her sex was not a deciding factor and a male part-time worker would, one can assume, have been treated no differently.
In fact, the tribunal decided in her favour. It ruled that the exclusion of part-time workers from MHO status was indirect discrimination based on sex. They agreed with Mrs Magorrian that a far smaller number of women than men employed in the mental health sector could satisfy the requirements of full-time working. This discrimination was held to be unjustified. Having reached its verdict, however, the tribunal decided it must refer certain points to the European Court of Justice before damages could be awarded.
Most importantly, it asked how far Mrs Magorrian's service should be backdated in order to assess the additional benefits she was entitled to.
There were several potential choices for the European Court when selecting the date for the backdated service:
April 8, 1976: the date of the Defrenne judgement (the first equal pay case brought under Article 119 of the Treaty of Rome).
May 13, 1986: the date of the Bilka-Kaufhaus judgement.
May 17, 1990: the date stipulated in Barber v GRE.
To apply the limit under the Equal Pay Act (Northern Ireland) 1970 (with parallel legislation elsewhere in the UK) which stipulates that arrears of remuneration may not be backdated more than two years prior to the claim being made.
Or any other such date as the European Court should decide.
The court decision examined the possibilities. In brief, it concluded that the limits in Barber v GRE are relevant only to discrimination relating to pensionable age, survivors' benefits and actuarial factors.
Further, that the restriction imposed by the Equal Pay Act is not appropriate. The European Court of Justice has ruled consistently that national time limits will be disregarded if they render rights under Community Law worthless or unworkable and that the periods of service completed by part-time workers who have been subject to sexual discrimination are to be taken into account from April 8, 1976.
The decisions in the Magorrian case threatened to reverberate through all occupational pension schemes. The issue of part-timer equality of pension benefits and access is already well accepted – the prime importance of the Magorrian judgement relates to the possible backdating of claims to 1976.
Next week, I look at how the result of Preston v Wol-verhampton has impacted on pensions. I will also discuss the measures a financial adviser can take to help tens of thousands of people claim tens of thousands of pounds worth of additional pension benefits.
Keith Popplewell ismanaging director of Professional Briefing