1. By virtue of the judgment of 17 May 1990 in Case C-262/88 Barber, the direct effect of Article 119 of the Treaty may be relied on in order to claim equal treatment in the matter of occupational pensions only in relation to benefits payable in respect of periods of service subsequent to the date of that judgment, subject to the exception in favour of workers or those claiming under them who have, before that date, initiated legal proceedings or raised an equivalent claim under the applicable national law. That limitation also applies where it is a question of determining the value of transfer benefits and lump-sum options under a private occupational pension scheme.
2. The fact that account is taken, in determining the funding of a defined-benefit occupational pension scheme, of actuarial factors differing according to sex, such as the fact that women live on average longer than men, giving rise to the payment by the employer of higher contributions for women than for men, and which has the result that, in the event of the transfer of acquired rights and the conversion of pension rights into a capital sum, men are entitled to lower sums than those to which women are entitled, does not fall within the scope of Article 119 of the Treaty.
Although both the pension, of a defined amount, which the employer promises to pay and the employee' s contributions under a contributory scheme are pay for the purposes of Article 119 and must be the same for men and women, this is not so in the case of the employers' contributions which ensure the adequacy of the funds necessary to cover the costs of the pensions promised and to secure their payment in the future.
In Case C-152/91,
REFERENCE to the Court under Article 177 of the EEC Treaty by the Leeds Industrial Tribunal (United Kingdom) for a preliminary ruling in the proceedings pending before that court between
David Neath
and
Hugh Steeper Ltd
on the interpretation of Article 119 of the EEC Treaty and of the limitation of the effects in time of the judgment of the Court of Justice of 17 May 1990 in Case C-262/88 Barber v Guardian Royal Exchange Assurance Group [1990] ECR I-1889,
THE COURT,
composed of: O. Due, President, G.F. Mancini, J.C. Moitinho de Almeida, M. Diez de Velasco, D.A.O. Edward (Presidents of Chambers), C.N. Kakouris, R. Joliet, F.A. Schockweiler, G.C. Rodríguez Iglesias, F. Grévisse, M. Zuleeg, P.J.G. Kapteyn and J.L. Murray, Judges,
Advocate General: W. Van Gerven,
Registrar: H. von Holstein, Deputy Registrar, and D. Louterman-Hubeau, Principal Administrator,
after considering the written observations submitted on behalf of:
° David Neath, by Michael J. Beloff QC, Clive Lewis and Sarah Moore, Barristers,
° Hugh Steeper Ltd, by David Pannick, Barrister,
° the United Kingdom, by John E. Collins, of the Treasury Solicitor' s Department, acting as Agent, and Stephen Richards, Barrister,
° the Netherlands Government, by B.R. Bot, Secretary-General at the Ministry of Foreign Affairs, acting as Agent,
° the German Government, by Ernst Roeder, Ministerialrat at the Federal Ministry for Economic Affairs, acting as Agent,
° the Irish Government, by Louis J. Dockery, Chief State Solicitor, acting as Agent, and Aindrias O' Caoimh BL,
° the Danish Government, by Joergen Molde, Legal Adviser at the Ministry for Foreign Affairs, acting as Agent,
° the Commission of the European Communities, by Karen Banks, of its Legal Service,
having regard to the Report for the Hearing,
after hearing the oral observations of David Neath, Hugh Steeper Ltd, the United Kingdom, represented by Sir Nicholas Lyell QC, Attorney General, S. Richards and N. Paines, Barristers, and by J.E. Collins, of the Treasury Solicitor' s Department, acting as Agent, the Netherlands Government, represented by J.W. de Zwaan and T. Heukels, Deputy Legal Advisers at the Ministry for Foreign Affairs, acting as Agents, the German Government, the Irish Government, represented by J. Cooke SC and A. O' Caoimh BL, acting as Agents, the Danish Government and the Commission, at the hearing on 26 January 1993,
after hearing the Opinion of the Advocate General at the sitting on 28 April 1993,
gives the following
Judgment
1 By order of 13 May 1991, received at the Court on 10 June 1991, the Leeds Industrial Tribunal referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty three questions on the interpretation of Article 119 of that Treaty and of the judgment of the Court of Justice of 17 May 1990 in Case C-262/88 Barber v Guardian Royal Exchange Assurance Group [1990] ECR I-1889 (hereinafter "the Barber judgment") regarding the limitation of its effects in time.
2 The three questions have been raised in the context of proceedings between Mr David Neath and the company Hugh Steeper Ltd concerning the rules for granting a company pension and the transfer of pension rights.
3 Mr Neath was employed by Hugh Steeper from 29 January 1973 to 29 June 1990, the date on which he was made redundant. At that time he was 54 years and 11 months old. During that period he was successively a member of two private occupational pension schemes run by his employer, the entitlements acquired under the first scheme having been transferred to the scheme of which he was a member at the time when he was made redundant and which was a "contracted-out" scheme (i.e., contracted out of the State Earnings-Related Pension Scheme).
4 According to the rules of that contracted-out scheme, male employees may not claim a full company pension until they are 65 years of age whilst female employees may receive a full pension at 60 years of age.
5 However, any member may, with the consent of the employer and the scheme trustees, take early retirement at any time after his 50th birthday and receive a pension which is payable immediately but which is reduced according to the length of the period between the actual retirement date and the normal retirement date. If the employer or the trustees refuse their consent, as they did in Mr Neath' s case, the member is entitled only to have his acquired pension rights transferred to another pension scheme or to receive a deferred pension payable on the normal retirement date, unless he then opts to have part of that pension converted into a capital sum.
6 When making his choice, Mr Neath realised, on the basis of the figures given by the scheme, that if he opted to have his pension rights transferred, his financial situation would be more favourable if the interpretation of the Barber judgment were that any male employee retiring, like himself, after 17 May 1990 (the date of the judgment) is entitled to have his pension recalculated on the same basis as his female counterpart in relation to the entire period of his service. If the interpretation were that such entitlement may be claimed only in respect of periods of service subsequent to that date, he would be entitled to a smaller sum.
7 Mr Neath also noted that, on either interpretation, the transfer value will in any case be lower than his female colleagues would have received because of the use, in the assessment of the capital sum transferred, of actuarial factors based on life expectancy which differ for men and women.
8 Similarly, if he were to opt for a deferred pension and ask for part of it to be converted into a capital sum, he would receive, owing to those same actuarial factors, a sum less than his female counterpart would receive.
9 Relying on the principle of equal pay for men and women, as laid down in Article 119 of the Treaty and interpreted by the Court of Justice in the Barber judgment, Mr Neath then applied to the Leeds Industrial Tribunal seeking the same rights as women in the same situation. In those circumstances, the Industrial Tribunal decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:
"1. Whether Article 119 and the Barber judgment have the simple effect of entitling a male employee whose employment ends on or after 17 May 1990 to the same pension as that which he would have received if he had been a woman?
2. Whether the same applies to his exercising options under the pension scheme to
(a) transfer benefits, and
(b) lump-sum options?
3. If the answer to Question 1 or Question 2, or both is no, what considerations, if any, have to be given to
(a) his service prior to 17 May 1990, and
(b) the use of sex-based actuarial assumptions in the pension scheme?"
10 Reference is made to the Report for the Hearing for a fuller account of the facts of the case, the procedure and the written observations submitted to the Court, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court.
11 The preliminary questions are reducible to two issues: (a) the interpretation of the Barber judgment with respect to the limitation of its effects in time and (b) the question whether the use of actuarial factors differing according to sex in the sphere of private occupational pension schemes is compatible with Article 119 of the Treaty.
(a) The interpretation of the Barber judgment with respect to the limitation of its effects in time
12 By its first and second questions, and by the first limb of the third question, the national court seeks clarification of the correct operation of the limitation of the effects in time of the Barber judgment.
13 As the Court stated in its judgment of 6 October 1993 in Case C-109/91 Ten Oever v Stichting Bedrijfspensioenfonds voor het Glazenwassers-en Schoonmaakbedrijf [1993] ECR I-4879, the precise context in which that limitation was imposed was that of benefits (in particular, pensions) provided for by private occupational schemes which were treated as pay within the meaning of Article 119 of the Treaty.
14 That ruling took account of the fact that it is a characteristic of this form of pay that there is a time lag between the accrual of entitlement to the pension, which occurs gradually throughout the employee' s working life, and its actual payment, which is deferred until a particular age.
15 The Court also took into consideration the way in which occupational pension funds are financed and thus of the accounting links existing in each individual case between the periodic contributions and the future amounts to be paid.
16 Given the reasons explained in paragraph 44 of the Barber judgment for limiting its effects in time, it must be made clear that equality of treatment in the matter of occupational pensions may be claimed only in relation to benefits payable in respect of periods of employment subsequent to 17 May 1990 (the date of the Barber judgment) subject to the exception in favour of workers or those claiming under them who have, before that date, initiated legal proceedings or raised an equivalent claim under the applicable national law.
17 As regards transfer benefits and lump-sum options with which the second question is concerned, since by virtue of the Barber judgment Article 119 cannot be invoked to call in question the financial basis of pension rights accrued before 17 May 1990 on the basis of different retirement ages, it follows, subject to the explanations below, that its capital equivalent must necessarily be subject to the consequences of that temporal limitation.
18 The answer to be given to the national court must therefore be that by virtue of the Barber judgment the direct effect of Article 119 of the Treaty may be relied on in order to claim equal treatment in the matter of occupational pensions only in the case of benefits payable in respect of periods of service subsequent to 17 May 1990, subject to the exception in favour of workers or those claiming under them who have, before that date, initiated legal proceedings or raised an equivalent claim under the applicable national law. The value of transfer benefits and lump-sum options is affected likewise.
(b) The use of actuarial factors differing according to sex in the sphere of private occupational pension schemes
19 It appears that the occupational pension scheme of which Mr Neath was a member when he was made redundant is a defined-benefit/final-salary scheme which provides employees reaching retirement age with a defined pension corresponding to one-sixtieth of their final salary for each year of service.
20 The scheme is contributory, in the sense that it is funded not only by contributions from the employer but also by contributions from employees.
21 The employees' contributions correspond to a percentage, identical for men and women, of their salary.
22 The employer' s contributions, however, which are calculated in the aggregate, vary over time, so as to cover the balance of the cost of the pensions promised. They are also higher for female employees than for male employees.
23 This variability and inequality are due to the use of actuarial factors in the mechanism for funding the scheme. The aim of an occupational retirement pension scheme being to provide for the future payment of periodic pensions, the scheme' s financial resources, accrued through funding, must be adjusted to the pensions which, according to forecasts, will have to be paid. The assessments needed to give effect to this system are based on a number of objective factors, such as the return on the scheme' s investments, the rate of increase in salaries and demographic assumptions, in particular those relating to the life expectancy of workers.
24 The fact that women live on average longer than men is one of the actuarial factors taken into account in determining how the scheme in question is to be funded. This is why the employer has to pay higher contributions for his female employees than for his male employees.
25 In the case of the transfer of acquired rights and in the case where part of a pension is converted into capital (the cases under consideration in the main proceedings), the fact that account is taken of different actuarial factors as just described has the result that male employees are entitled to sums lower than those to which female employees are entitled.
26 Essentially, the national court wants to know whether such differences are compatible with Article 119 of the Treaty. In order to reply to that question, it must be determined whether transfer benefits and lump-sum options constitute pay within the meaning of that article.
27 The Commission claims that this is indeed the case and that consequently any difference in treatment based on sex would be permissible only if it were objectively justified. Statistical data based on the life expectancy of the two sexes do not, in its view, constitute an objective justification because they reflect averages calculated on the basis of the entire male and female population whereas the right to equal treatment in the matter of pay is a right given to employees individually and not because they belong to a particular class.
28 It is, of course, settled law that the concept of pay, within the meaning of the second paragraph of Article 119, comprises any consideration, whether in cash or in kind, whether immediate or future, provided that the worker receives it, albeit indirectly, in respect of his employment from his employer. The fact that certain benefits are paid after the end of the employment relationship does not prevent them from being pay within the meaning of Article 119 (see, in particular, the Barber judgment at paragraph 12).
29 The assumption underlying this approach is that the employer commits himself, albeit unilaterally, to pay his employees defined benefits or to grant them specific advantages and that the employees in turn expect the employer to pay them those benefits or provide them with those advantages. Anything that is not a consequence of that commitment and does not therefore come within the corresponding expectations of the employees falls outside the concept of pay.
30 In the context of a defined-benefit occupational pension scheme such as that in question in the main proceedings, the employer' s commitment to his employees concerns the payment, at a given moment in time, of a periodic pension for which the determining criteria are already known at the time when the commitment is made and which constitutes pay within the meaning of Article 119. However, that commitment does not necessarily have to do with the funding arrangements chosen to secure the periodic payment of the pension, which thus remain outside the scope of application of Article 119.
31 In contributory schemes, funding is provided through the contributions made by the employees and those made by the employers. The contributions made by the employees are an element of their pay since they are deducted directly from an employee' s salary, which by definition is pay (see the judgment in Case 69/80 Worringham and Humphreys v Lloyds Bank [1981] ECR 767). The amount of those contributions must therefore be the same for all employees, male and female, which is indeed so in the present case. This is not so in the case of the employer' s contributions which ensure the adequacy of the funds necessary to cover the cost of the pensions promised, so securing their payment in the future, that being the substance of the employer' s commitment.
32 It follows that, unlike periodic payment of pensions, inequality of employers' contributions paid under funded defined-benefit schemes, which is due to the use of actuarial factors differing according to sex, is not struck at by Article 119.
33 That conclusion necessarily extends to the specific aspects referred to in the questions submitted, namely the conversion of part of the periodic pension into a capital sum and the transfer of pension rights, the value of which can be determined only by reference to the funding arrangements chosen.
34 The answer to be given to the national court must therefore be that the use of actuarial factors differing according to sex in funded defined-benefit occupational pension schemes does not fall within the scope of Article 119 of the EEC Treaty.
Costs
35 The costs incurred by the Netherlands, German, Irish and Danish Governments, by the United Kingdom, and by the Commission of the European Communities, which have submitted observations to the Court, are not recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the proceedings pending before the national court, the decision on costs is a matter for that court.
On those grounds,
THE COURT,
in answer to the questions referred to it by the Leeds Industrial Tribunal by order of 13 May 1991, hereby rules:
1. By virtue of the judgment of 17 May 1990 in Case C-262/88 Barber v Guardian Royal Exchange Assurance Group, the direct effect of Article 119 of the EEC Treaty may be relied on in order to claim equal treatment in the matter of occupational pensions only in relation to benefits payable in respect of periods of service subsequent to 17 May 1990, subject to the exception in favour of workers or those claiming under them who have, before that date, initiated legal proceedings or raised an equivalent claim under the applicable national law. The value of transfer benefits and lump-sum options is affected likewise.
2. The use of actuarial factors differing according to sex in funded defined-benefit occupational pension schemes does not fall within the scope of Article 119 of the EEC Treaty.
