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|The First Secretary of State
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James Eadie (instructed by Treasury Solicitor) for the Defendant
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Andrew Nicol QC :
'(1) If a member leaves a local government employment (or is treated for these regulations as if he had done so) before he is entitled to the immediate payment of retirement benefits (apart from this regulation), once he is aged 50 or more he may elect to receive payment of them immediately.
(2) An election made by a member aged less than 60 is ineffective without the consent of his employing authority (but see paragraph (6)).
(3) If the member elects, he is entitled to a pension and retirement grant payable immediately.
(4) If the sum –
(a) of the member's age in whole years on the date his local government employment ends or the date he elects, if later,
(b) of his total membership in whole years, and
(c) in a case where he elects after his local government employment ends, of the period beginning with the end of that employment and ending with the date he elects,
is less than 85 years, his retirement pension and grant must be reduced by the amounts shown as appropriate in guidance issued by the Government Actuary (but see paragraphs (5) and (6) and regulation 36(5) (GMPs)).
(5) A member's appropriate employing authority may determine on compassionate grounds that his retirement pension and grant should not be reduced under paragraph (4).
(6) If a member who has left a local government employment before he is entitled to the immediate payment of retirement benefits (apart from this regulation) becomes permanently incapable of discharging efficiently the duties of that employment because of ill-health or infirmity of mind or body –
(a) he may elect to receive payment of the retirement benefits immediately, and
(b) paragraphs (2) and (4) do not apply.
(7) If a member does not elect for immediate payment under this regulation, he is entitled to receive a pension and grant without reduction, payable from his NRD [I interpose that this stands for 'Normal Retirement Date' which is prescribed as 65 for both men and women] or from such earlier date on or after his 60th birthday as the member elects on which the sum of the items referred to in sub-paragraphs (a) to (c) of paragraph (4) is 85 years or more.
(8) An election under paragraph (1) must be made by notice in writing to the member's scheme employer.'
'(14) This Directive shall be without prejudice to national provisions laying down retirement ages
(25) The prohibition of age discrimination is an essential part of meeting the aims set out in the Employment Guidelines and encouraging diversity in the workforce. However, differences in treatment in connection with age may be justified under certain circumstances and therefore require specific provisions which may vary in accordance with the situation in Member States. It is therefore essential to distinguish between differences in treatment which are justified, in particular by legitimate employment policy, labour market and vocational training objectives, and discrimination which must be prohibited.'
'where one person is treated less favourably than another is, has been, or would be treated in a comparable situation, on any of the grounds referred to in Article 1.'
Where an apparently neutral provision has the effect of putting persons at a disadvantage by reference to any of the grounds covered by the Directive this will amount to indirect discrimination unless the provision in question is justified (see Article 2(2)(b)(i)), but indirect discrimination is not at issue in these proceedings. The Directive applies to all persons as regards both private and public sectors in relation to (amongst other things) 'employment and working conditions, including dismissals and pay' (see Article 3(1)(c))
'(1) Notwithstanding Article 2(2), Member States may provide that differences of treatment on grounds of age shall not constitute discrimination, if, within the context of national law, they are objectively and reasonably justified by a legitimate aim, including legitimate employment policy, labour market and vocational training objectives, and if the means of achieving that aim are appropriate and necessary.
Such differences of treatment may include, among others:
(a) the setting of special conditions on access to employment and vocational training, employment and occupation, including dismissal and remuneration conditions, for young people, older workers and persons with caring responsibilities in order to promote their vocational integration or ensure their protection;
(b) the fixing of minimum conditions of age, professional experience or seniority in service for access to employment or to certain advantages linked to employment;
(c) the fixing of a maximum age for recruitment which is based on the training requirements for the post in question or the need for a reasonable period of employment before retirement.
(2) Notwithstanding Article 2(2), Member States may provide that the fixing for occupational social security schemes of ages for admission or entitlement to retirement or invalidity benefits, including the fixing under those schemes of different ages for employees or groups or categories of employees, and the use, in the context of such schemes, of age criteria in actuarial calculations, does not constitute discrimination on the grounds of age, provided this does not result in discrimination on the grounds of sex.'
'Further scheme amendments are also necessary to implement the terms of the European Employment Directive 2000/78/EC which establishes a general framework for equal treatment in employment and occupation. To give effect to the Directive and compliance with the timetable for associated Government legislation on age discrimination and employment law being introduced by DTI, the effective date for the removal of the rule of 85 from the LGPS will be 1 October 2006.'
'The continued affordability and viability of the Scheme, as well as its acceptability to taxpayers, remains a central theme of the Government's intentions for the LGPS. So too is our commitment towards ensuring the Scheme offers an equality proofed pension framework for all its increasingly diverse and part-time workforce. Delivering an effective and affordable balance between the cost of its provision to employers and tax payers on the one hand, and fairness to Scheme members on the other, remains a priority, within the overall resource framework of local government and of other employers within the Scheme.'
'In deciding on the regulations needed to ensure that all members' pensions are safe, and prudently funded, the Government have to take account of the advice of actuaries, as well as representatives of employers and members, and other interested parties. My 2 December statement made clear the Government's intentions to secure the scheme's continued affordability and viability, without placing an unfair burden on tax-payers. The Government remain committed to that objective, and also to providing an equality-proofed scheme which is flexible and attractive in its provisions to employees and employers, both now and in the future.'
'To ensure compliance with European Union age discrimination legislation, set out in Council Directive 2000/78/EC, and to secure ongoing cost stability, the rule of 85 will be removed from the Scheme with effect from 1 October 2006.'
Is it necessary to determine the discrimination questions?
'The Deputy Prime Minister has concluded that the 85 year rule is age discriminatory and therefore needs to be removed from the Scheme in order to comply with the Directive…However, even without this need to comply with the Directive, the Deputy Prime Minister would have removed the rule of 85 on policy grounds on the basis of proper management of local authority budgets and stabilising the costs of the pension scheme and the choices to be made on spending. Without doing so the liability, identified as some 1.5 – 2.5% of pensionable pay, would have fed through either into a likely need to increase council tax or making equivalent budgetary savings with potential for job losses and/or reductions in services.'
'Where the reasons given by a statutory body for taking or not taking a particular course of action are not mixed and can clearly be disentangled, but where the court is quite satisfied that even though one reason may be bad in law, nevertheless the statutory body would have reached precisely the same decision on the other valid reasons, then this court will not interfere by way of judicial review. In such a case, looked at realistically and with justice, such a decision of such a body ought not to be disturbed….
Another approach to the same problem in such circumstances, which really reflects the same thinking is this: the grant of what may be the appropriate remedies in an application for judicial review is a matter for the discretion of this court. Where one is satisfied that although a reason relied on by a statutory body may not properly be described as insubstantial, nevertheless even without it the statutory body would have been bound to come to precisely the same conclusion on valid grounds, then it would be wrong for this court to exercise its discretion to strike down, in one way or another, that body's conclusion.'
'67. Even though the 85 year rule is age discriminatory, articles 2.2 and 6.2 of the Directive 2000/78/EC permit Member States to objectively justify continuation of such discrimination to achieve a legitimate aim. It is considered that the protection of those scheme members closest to retirement who do not have time to make alternative arrangements to off-set any reduction in their benefits as a result of the removal of the 85 year rule is objectively justified.
68. Benefits - None – these protections were assumed at the 2004 valuations and so are already reflected in employer contribution rates for 2005/6 – 2007/08.
69. Costs - None - these provisions were assumed at the 2004 valuations and so are already reflected in the employer contribution rates for 2005/06 – 2007/08.'
Another of the options (option 9) was to protect those who would otherwise have satisfied the 85 year rule before 2018. As to this paragraph 82 of Annex H to the Statement said,
'82. The Government's view is that extending the 2012 protections until 2018 could also be justified on the same grounds as Option 7.
83. Benefits – None
84. Costs – Around an additional £1 billion on top of the cost of 2013 protections as assumed at the 2004 fund valuations. This would mean that there would be less money available in the new-look scheme for benefit improvements for all scheme members.'
The choice made by the government in March 2006 was option 7. In my judgment, Mr Eadie can rightly point to this as evidence that where there were two options both of which, on the government's view of the Directive, canvassed the argument that could be lawfully adopted, the Defendant chose the option which better fitted with the economic considerations. I do not consider that this argument is undermined or affected by the later decision in July 2006 (when the Amendment (No.2) Regulations were made) to extend the transitional protection to those who would otherwise have satisfied the 85 year rule and were 60 or more by 2016.
In any event, did the Defendant misdirect itself as to the impact of the Directive?
Does the 85 year rule amount to age discrimination at all?
'The Government has concluded under this legislation the 85 year rule would be considered age discriminatory and therefore must be removed from the Scheme no later that 1 October 2006. This is because the 85 year rule takes the sum of the member's age and pensionable service to determine eligibility to pension benefit. If a member does not have sufficient age and pensionable service, they are not eligible for the benefit.
The following example may help: The members must be in comparable situations but for their age; one is 61 and the other 63; they both have 22 years service and wish to retire; the 63 year old would have no actuarial reduction in their pension as they satisfied the 85 year rule, whereas the 61 year old would have an actuarial reduction. The reason for the different pension entitlements is on the basis of age; therefore the rule is age discriminatory.'
Member A and Member B join the Scheme at the same time. Member A joins the scheme at 30 and leaves after 15 years service. Member A satisfies the 85 year rule at 60 and may take the 15 years of preserved benefits at age 60 without reduction. Member B joins the scheme at age 45 and leaves after 15 years service. Member B does not satisfy the 85 year rule until age 65. Therefore Member B cannot take 15 years of benefits without reduction until he is 65. The only difference between the two members is the age at which they joined the Scheme.
Is the 85 year rule taken out of the scope of the Directive by Article 6(2)?
'Since the text of the derogation refers to the 'determination of pensionable age for the purposes of granting old-age and retirement pensions', it is clear that it concerns the moment from which pensions become payable. The text does not, however, refer expressly to discrimination in respect of the obligation to contribute for the purposes of the pension or the amount thereof. Such forms of discrimination therefore fall within the scope of the derogation only if they are found to be necessary in order to achieve the objectives which the Directive is intended to pursue by allowing Member States to retain different pensionable age for men and women.'
The Court considered that the purpose of the derogation was to allow member states to maintain (at least temporarily) this form of discrimination to avoid disrupting the financial equilibrium of the pension systems. If that object was to be achieved it was necessary to allow Member States to continue as well the contribution structure which was also part of the same financial equilibrium. To find the contrary would render nugatory the purpose of Article 7(1)(a). It therefore concluded that differential contribution periods were also outside the scope of the Directive.
Mr Goudie argues that the 85 year rule is similarly integral to the determination of age at which entitlement to retirement benefits arises. It should therefore be treated as within the implicit scope of the derogation in Article 6(2).
a. I accept that the phrase 'entitlement to retirement benefits' would embrace in the present context, entitlement to unreduced retirement benefits. From age 60 a member of the LGPS is entitled to some retirement benefit, but the benefit will be reduced if the 85 year rule is not fulfilled. I think that this follows from the EOC case where the issue was also whether a man who was only entitled to a reduced pension because his contributions had been paid for more than 39 years but less than 44 could rely on the Directive. It was never suggested that he was outside the terms of the Directive because he could have received some pension.
b. However, the 85 year rule does not simply lay down different ages at which there will be an entitlement to the unreduced pension. It adopts a formula which is essentially based on two elements: age at retirement (or more accurately age at which the member elects to receive a pension) and the age at which the member joined the scheme. The combined effect of paragraphs (b) and (c) of regulation 31(4) – see paragraph 2 above – is that it is a matter of indifference whether after joining the scheme, the member continues in local government employment or not. I emphasise that I am here discussing the impact of the 85 year rule. Length of service will have an impact elsewhere in the computation of the size of the pension but not via the 85 year rule. Simplifying the position somewhat (but not by much) it is possible to tell whether the 85 year rule is fulfilled by using a formula A + (A-B) where A is the age at election to receive a pension and B is the age at the time the member joined the Scheme. If the formula produces a figure of 85 or more the rule is satisfied.
c. Mr Goudie comments that Article 6(2) expressly allows different ages to be fixed for different employees, groups of employees or categories of employees. He accepts that the 85 year rule uses age at date of retirement plus other criteria, but those other criteria, he would submit, do no more than define the groups or categories of employees who will have different ages at which they will receive unreduced pensions.
d. Attractively though this argument was put, it seems to me that it is flawed. The other significant criterion is age at the date of joining the Scheme (B in my simplified formula). In my view, the other criteria which are used to define the groups or categories of employees cannot be ones which are themselves age related.
e. It is true that Article 6(2) also allows schemes to continue which fix differential ages for admission to pension schemes. But that aspect of the derogation is not relevant to the present dispute. Similarly, the derogation allows the use of age criteria in actuarial calculations. But that aspect is also irrelevant to the present dispute.
f. Nor do I think that it is necessary to interpret Article 6(2) in the way that Mr Goudie contends in order to give proper effect to the purpose of the derogation. The EOC case is not analogous. The purpose of allowing different retirement ages to be specified for different groups of workers will not be rendered nugatory or futile if the 85 year rule falls outside of the derogation. Furthermore, the Directive would allow the practice to continue if it was justified even though it was directly discriminatory and was not taken out of the scope of the Directive by the derogation.
Did the Government err in law when it decided that the 85 year rule could not be justified under Article 6(1)
a. Rights which have already accrued are protected by the transitional provisions in the amending regulations. Protection is extended by the Amendment (No.2) Regulations so as to protect the rights of all current members accrued to 1st April 2008 (see regulation 17), those current members who become 60 before 1st April 2016 continue to enjoy the benefit of the 85 year rule in respect of the whole of their pensions (i.e. including pension accrued after 1st April 2008) and there is tapered protection for those who will reach 60 before 1st April 2020.
b. To provide continuing protection for all those who are currently members for their lifetimes would be very expensive – about £5 billion according to the Government Actuary's Department
c. The justification, which the government acknowledged, for some transitional protection was that members close to retirement age might otherwise have difficulties in making alternative arrangements for their pensions. That did not apply or not apply with so much force to those who were younger, who were further away from retirement and who would have longer to make alternative plans or take account of their altered pension rights.
d. The position of other public sector workers was not comparable because the 85 year rule applied exclusively to the LGPS.
e. Other intermediate options were not as expensive, but they all required the government to make a judgment taking account of the aim for some protections (which the government had accepted as legitimate), its diminishing force as the protection was widened and cost. These were matters of evaluation. The regulations for England and Wales which were challenged by these proceedings could not be said to be unreasonable simply because a slightly different judgment had been made in Scotland (and, in any case, the extension of tapered protection until 2020 for members in England and Wales meant that the difference was less sharp than Mr Goudie portrayed).
Were the amending regulations or its preceding consultation legally flawed because of the information or projections on which they were based?
a. GAD's assumption that all members will take normal retirement at the earliest age at which they can take an unreduced pension. Because a very significant proportion of members do not do this, but retire on terms which are not affected by the 85 year rule, GAD's approach overstates the cost of affording all current members the option of retaining the benefit of the 85 year rule.
b. GAD has used a consistent long term discount rate of 3.5% in arriving at an average annuity value when the more common practice nowadays would be to use separate discount rates for pre- and post-retirement events.
c. There has also been introduced into the LGPS the option of taking a larger cash sum in return for a reduced pension. This will produce a saving for the Scheme which GAD has undervalued. GAD has also under-estimated the likely take up rate of this option.
d. The Claimant also disputes GAD's approach to age at which future members to the scheme will retire and mortality rates.
e. GAD has also taken no account of what are called 'strain payments'. These are payments which are made when a member of the Scheme retires on efficiency or redundancy grounds. Abolition of the 85 year rule, would, the Claimant argues, cause more members to rely on strain payments. However, this additional cost of the Scheme as amended has not been taken into account by GAD.
'Strain payments are not prefunded in the pension scheme, rather they are usually payable when the redundancy occurs. They do not therefore accrue as a pension liability and do not form part of the fund actuaries' regular triennial valuation to recommend the rate of regular employer contribution to the scheme. Consequently, when advising on the likely impact on pension scheme finances and employer contributions from potential changes to the scheme such as commutation savings or the removal of the rule of 85, strain payments (which, in any event, effectively go towards the provision of redundancy benefits as opposed to pension benefits) would not be included.'
THE DEPUTY JUDGE: Miss White and Miss Sampson, the draft of the judgment that I circulated to the parties recently attracted comments from the Treasury Solicitors for which I am grateful. I have incorporated those into the revised version which should be, if it has not already been, made available to you.
For the reasons which I have I given in this written judgment, the application for judicial review is dismissed.
MISS WHITE: My Lord, I apply for an order that the claimant pay the defendant's costs of the application, not only because my Lord has dismissed the application, but because my Lord has found in favour of the (end of sentence inaudible).
THE DEPUTY JUDGE: Miss Sampson?
MISS SAMPSON: My Lord, that application is resisted on the ground that the claimant did not act unreasonably in bringing the claim at the permission stage (end of sentence inaudible).
THE DEPUTY JUDGE: I am sorry, Miss Sampson, I cannot hear you. The acoustics in here are terrible.
MISS SAMPSON: My Lord, the application is resisted on the grounds that the claimant had an arguable case at the permission stage. The claimant has not acted unreasonably in bringing this application.
THE DEPUTY JUDGE: Yes, thank you. No, the claimant must pay the defendant's costs -- detailed assessment if not agreed.
MISS WHITE: I am grateful, my Lord.
THE DEPUTY JUDGE: Anything else?
MISS WHITE: No, my Lord.