Pensions Act 2004 and the Equality Act 2010 (Amendment) (Equal Treatment by Occupational Pension Schemes) Regulations 2023

Tuesday 14th November 2023 Grand Committee

Considered in Grand Committee

16:25

Moved by

[Viscount Younger of Leckie]

That the Grand Committee do consider the Pensions Act 2004 and the Equality Act 2010 (Amendment) (Equal Treatment by Occupational Pension Schemes) Regulations 2023.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Viscount Younger of Leckie) (Con)]

My Lords, I shall speak also to the Occupational Pension Schemes (Amendment) (Equal Treatment) (Northern Ireland) Regulations 2023, the Pensions Act 2004 (Amendment) (Pension Protection Fund Compensation) Regulations 2023 and the Pensions (Pension Protection Fund Compensation) (Northern Ireland) Regulations 2023. These regulations were laid before this House on 18 September 2023. In my view, the provisions in these sets of regulations are compatible with the European Convention on Human Rights.

When the UK left the European Union, much EU law was initially preserved to ensure legislative continuity. Now, however, some pieces of law need to be restated. This is because following the Retained EU Law (Revocation and Reform) Act after 31 December 2023 certain retained EU law addressed in court cases will stop applying. Therefore, to remove any legal ambiguity for occupational pension schemes, DWP is restating the law addressed in three court cases—Allonby, Walker and Hampshire—the former only in relation to the extent that it applies to guaranteed minimum pensions.

We will be debating four sets of regulations: a set of two instructions for Great Britain and Northern Ireland covering the Allonby and Walker judgments and a similar set of two instructions for the Hampshire judgment. At the request of the Northern Ireland Executive, the Government have agreed to legislate on behalf of the Department for Communities in Northern Ireland. I will start therefore with the Pensions Act and the Equality Act 2010 (Amendment) (Equal Treatment by Occupational Pension Schemes) Regulations 2023 and its Northern Ireland equivalent that relate to the Allonby and Walker judgments.

Allonby is about the right to equal pay between men and women where discrimination has arisen in an occupational pension scheme because of legislation on guaranteed minimum pensions—GMPs. Regulation 2 restates the law dealt with in the European Court of Justice’s Allonby judgment, but only to the extent it applies to guaranteed minimum pensions legislation from 17 May 1990 onwards. I will provide a little background, as there are a few things that need to be brought together. First, GMPs, which were a part of the occupational pensions system from 1978 to 1997, are unequal for men and women, reflecting general differences in treatment between men and women in legislation at the time. There are disparities, including the age at which guaranteed minimum pensions can be paid: age 65 for men and age 60 for women. These differences in treatment can result in men and women in identical employment receiving different amounts of pension benefits from their occupational pension scheme.

Secondly, the European Court of Justice’s Barber judgment of 17 May 1990 found that pension benefits must be paid to men and women on an equal basis for pensions earned from the judgment date onwards. This means that pension schemes are required to equalise pensions to correct the unequal impact caused by members having a GMP.

Thirdly, in 2004, the European Court of Justice’s Allonby judgment found that where legislation is the source of discrimination, it is not necessary for a claimant to be able to point to a real-life opposite sex comparator.

This brings us to the Equality Act 2010, which requires schemes to have an equal treatment rule; anything in a pension scheme’s rules that treats one sex less favourably than the other should be read as if it does not do so. However, this applies only when there is a real-life comparator. If a woman wanted to show that she was being treated unequally, for example, she would have to point to a real-life man who was being treated differently. In some pension schemes this was difficult to prove. Noble Lords will remember occupations such as dinner ladies or miners.

16:30

The effect of the Allonby judgment was to override this requirement of the equality legislation as it applied to GMPs earned from 17 May 1990. Therefore, because of Allonby, schemes are required to equalise pensions for the unequal effects caused by the GMP legislation even in the absence of a real-life comparator. Regulation 3 will make the same changes for the Pension Protection Fund.

I turn to Regulation 4. The Walker judgment was about pension rights on which survivor benefits are based where a member is in a same-sex marriage or civil partnership. Survivor benefits are important because they provide the member with a degree of reassurance that, should the worst happen, their surviving spouse or civil partner will continue to receive some ongoing financial support from the member’s scheme.

I will provide the Committee with some background history. Before 2005, same-sex couples could not enter into a legally recognised relationship such as a marriage. This meant that often they did not have that same reassurance. While same-sex civil partnerships were introduced in December 2005, occupational pension schemes were permitted to calculate civil partnership survivor benefits based on the scheme member’s pension rights earned only since that date. The result of this was that someone who retired in 2010 could have 40 years of pension rights built up over a lifetime, but their civil partner could inherit less than five years of survivor benefit rights. A determined man, Mr Walker, challenged the legislation. The UK Supreme Court concluded that the exception to the non-discrimination rule in the legislation was not compatible with the EU’s framework directive on equal treatment in employment.

The Government remain committed to the outcome of the Walker judgment. It is therefore important to remove any doubt by amending the Equality Act to reflect it. The changes we are making will mean that legislation will not allow schemes to restrict the pension rights used to provide survivor benefits for survivors in a same-sex legal relationship to only those earned after December 2005. The change to legislation will give affected scheme members peace of mind and certainty.

I turn to the Hampshire judgment. I will start by giving some context to the Pensions Act 2004 (Amendment) (Pension Protection Fund Compensation) Regulations 2023 and the corresponding Northern Ireland regulations. These regulations retain the effects of the Hampshire judgment in domestic legislation. Mr Hampshire, a member of the Turner and Newall pension scheme, took early retirement in the late 1990s. His employer subsequently became insolvent and the scheme was assessed by the Pension Protection Fund. Under Pension Protection Fund rules, Mr Hampshire’s benefits were substantially reduced because he was below the scheme’s normal pension age when his employer became insolvent. Mr Hampshire took the Pension Protection Fund to the European court. The court ruled that former employees must receive at least 50% of the value of their pension benefits in the event of their employer’s insolvency.

There was further litigation in the domestic courts which concluded with the UK’s Court of Appeal upholding the High Court’s ruling that the cap on Pension Protection Fund compensation constituted unlawful age discrimination. The cap previously applied to individuals below their scheme’s normal pension age when their employer became insolvent. The Pension Protection Fund is now identifying its members and members of the Financial Assistance Scheme affected by the Hampshire judgment, increasing their payments and paying arrears, where appropriate, to comply with the terms of the judgment. It is also uncapping the compensation payments of its affected members and backdating arrears.

In practice, most Pension Protection Fund members receive more than the 50% minimum established by the Hampshire judgment and few were affected by the compensation cap. However, without the Pensions Act 2004 (Amendment) (Pension Protection Fund Compensation) Regulations 2023 and the Northern Ireland equivalent, the Hampshire judgment would sunset on 31 December, and there would be no entitlements under the judgment in respect of insolvencies arising after that date. Retaining the effects of the Hampshire judgment beyond the sunset date means that all members of eligible pension schemes affected by the Hampshire judgment can be reassured that they will receive at least 50% of the value of their original pension benefits in the event of their employer’s insolvency.

The regulations also remove redundant references to the Pension Protection Fund compensation cap from the legislation to improve its clarity, ensure that it reflects the High Court’s decision, and provide the Pension Protection Fund with statutory cover. The Pension Protection Fund protects most private sector defined-benefit schemes, has almost 300,000 members and offers a vital safety net to members whose employer has become insolvent and therefore can no longer support the pension scheme. These regulations support that safety net.

These regulations will bring reassurance to members of defined-benefit occupational pension schemes, as well as to the pensions industry. All involved can be confident that nothing will change in practice with regard to the effects of the three judgments after 31 December 2023. I commend the regulations to the Committee and I beg to move.

[Lord Palmer of Childs Hill (LD)]

My Lords, I thank the noble Viscount for his complete exposé of all the problems that have existed and how the Government are trying to rectify them. Our Benches agree with these SIs. There is no problem with them. I see other noble Lords have lots of notes; I know from experience that I can be brief knowing that they will deal with the minutiae. This seems to be more rules bringing old EU law into domestic legislation. These SIs raise broader points about discrimination in pensions, which is roughly the scope of the legislation. However, as usual, in bringing old EU laws into place we are missing the opportunity to make pledges to follow the Parliamentary and Health Service Ombudsman’s recommendations. It reports conversations with WASPI—Women Against State Pension Inequality—women. I would appreciate it if the noble Viscount could comment on how that is going to be dealt with.

Will the noble Viscount give the committee an update on the LEAP—legal entitlement and administrative practices—exercise through which the Government are doing a corrections exercise for historic errors and underpayments to women? I understand that these processes are taking place, but I do not know quite how far they have gone or how quickly they are going or when the majority of cases will be dealt with. I hope that the noble Viscount can put a bit of meat on that and give us some timeframe for LEAP and WASPI women, which are two issues close to my heart.

[Baroness Drake (Lab)]

My Lords, I declare my interests set out in the register as a pension scheme trustee. I welcome these statutory instruments and thank the Minister for the clarity of his explanation of their history. The equal treatment by occupational pension scheme regulations before us maintain the protection of the right not to be discriminated against on the grounds of sexual orientation in relation to pension benefits, particularly survivor benefits, which would be lost on 31 December 2023 but for these regulations. That is a pretty compelling reason for welcoming them.

Those protections were originally secured through the EU framework directive for equal treatment and confirmed by our Supreme Court in the Walker case. They apply to occupational pension scheme benefits and to compensation to beneficiaries of pension schemes that enter the Pension Protection Fund.

My first thought was: gosh, the Government are taking things to the wire, time-wise, given that the House rises on 19 December. It does raise worrying concerns about what other pension protections for UK citizens, previously preserved by Section 4 of the European Union (Withdrawal) Act, will be lost because of a failure, whether by intent or neglect, to meet the 31 December 2023 deadline for changes to domestic legislation to be made for them to be retained. What level of confidence can the Minister give the House that all protections of pension benefits for members and beneficiaries preserved by Section 4 of the European Union (Withdrawal) Act are or will be captured in changes to domestic legislation prior to 31 December? Is it intended that some of those protections will not be preserved? If so, which are they?

These regulations also restate retained EU law on the right to equal pay between men and women where discrimination arises from the legislation on guaranteed minimum pensions by amendments to the Equality Act and the Pensions Act 2004, so the right continues to apply to occupational schemes and PPF payments. Very importantly—it is certainly close to my heart—the regulations retain the intent of the 2004 ECJ judgment of Allonby to nullify the requirement for a real-life opposite-sex comparator to demonstrate unequal treatment. Instead, a notional or statistical comparator can be used. That is such an important judgment and it demonstrates the value of the many ECJ judgments that contributed so importantly to progressing gender equality issues. As my noble friend was reflecting, so was I; I was actually a commissioner of the EOC, which supported the Allonby judgment at the time the ECJ pronounced its decision.

Unless the amendments to legislation are made by 31 December, this particular important protection is lost. Again, that is another compelling reason for welcoming these regulations. What level of confidence can the Minister give us that all rights to equal pay between men and women in the payment of pension benefits to members and beneficiaries, previously preserved by Section 4 of the European Union (Withdrawal) Act, are or will be retained in changes to domestic legislation prior to 31 December? While welcoming what we can see, we are nervous about what we cannot see, so we seek assurances on that.

The regulations before us on PPF compensation are also necessary because again, under the Retained EU Law (Revocation and Reform) Act 2023, without them the more generous PPF compensation payment calculations, which flow from the 2018 Hampshire judgment from the European court, would be lost. So too would the effects of the further clarifying 2020 Hughes judgment in the High Court, which was to disapply the then-existing cap on PPF compensation to those below their scheme’s normal retirement age, when the employer became insolvent. The High Court considered that it constituted unlawful age discrimination. For the intent of these judgments to remain, the regulations before us are required by the deadline of 31 December 2023, and of course there is an obvious and compelling reason why they are welcome.

It is very fortunate that the Government decided as policy to retain the effects of these judgments. It would have been a pretty poor show had they not, given the impact on individuals—and particularly so, given that the PPF is currently well funded, so much so that it is reducing its levy. We are very dependent on government to identify those elements of retained EU law to be retained in domestic law. What assurance can the Minister give that every element of retained EU law that impinges on the eligibility of pension scheme members for PPF compensation and the level and value of that compensation will be retained in domestic law after December 2023?

16:45

[Baroness Sherlock (Lab)]

My Lords, I thank the Minister for a very helpful introduction to these orders and particularly for explaining the background to the court cases, which will make reading Hansard for this debate a bit more comprehensible than might otherwise have been the case. I also thank my noble friend Lady Drake, to whose comments I shall return, and the noble Lord, Lord Palmer of Childs Hill, whose confidence in my determination to expose the detail and minutiae I trust will not be disappointed.

All these regulations are a product of Brexit, the gift that keeps on giving. I shall start with the draft Pensions Act 2004 (Amendment) (Pension Protection Fund Compensation) Regulations 2023—the other way around from the Minister. As we have heard, it was prompted by two court decisions: the Hampshire court judgment, whereby the ECJ found that former employees should get at least half the value of their accrued pension benefits if their employer was insolvent before they hit pension age, and Hughes, when the High Court disapplied the cap on PPF compensation for those below normal pension age on the date of the employer’s insolvency.

These regulations amend the Pensions Act 2004 to ensure that affected scheme members receive at least the minimum level of protection due under the Hampshire judgment and remove reference to the PPF cap. Also, interestingly, they clarify how the Hampshire judgment is being implemented by providing a calculation of PPF compensation by reference to a one-off valuation, as approved by the Court of Appeal in Hughes.

As has been noted, action is needed because, under Section 4 of the European Union (Withdrawal) Act 2018, the principles of EU law will sunset at the end of this year and cease to have effect, including where the position has changed as a result of court cases, which is very relevant to us today. The purpose of these regulations is to ensure that the effects of the Hampshire and Hughes judgments will be preserved in domestic legislation. Could the Minister confirm for the record that nothing will change from the current position once these regulations take effect and the relevant EU retained law has sunsetted?

Secondly, paragraph 10.1 of the Explanatory Memorandum reports that the DWP met with a cross-section of representatives of the pensions industry to seek views on its proposed response to the Hampshire judgment. There was broad support for retaining the effects of the judgment—but anybody who has worked in government will know that “broad support” can cover quite a range of views being expressed in the room. Out of interest, was there any opposition to retaining the effects of the Hampshire judgment and, if so, on what grounds? I am just interested in who was in the room.

I have read the draft Pensions (Pension Protection Fund Compensation) (Northern Ireland) Regulations 2023, which look on the face of it to be identical to the regulations I have just discussed, but amending the Pensions (Northern Ireland) Order 2005 instead of the Pensions Act 2004. Can the Minister confirm for the record that the effect of those regulations will be the same as the other ones, but just in Northern Ireland rather than in Great Britain? When regulations are this technical, it is important for the Committee to hear from the Minister what the intention is rather than just taking my word for it—love of detail notwithstanding.

I turn to the draft Pensions Act 2004 and the Equality Act 2010 (Amendment) (Equal Treatment by Occupational Pension Schemes) Regulations 2023—these are not catchy titles. These regulations were also prompted by court cases. In the Allonby case—I take the Minister’s point that this is being retained only inasmuch as it relates to GMPs, not its broader findings—the ECJ found that an opposite-sex comparator was not needed to demonstrate discrimination, where that was caused by legislation. In the Walker case, the UK Supreme Court found on the basis of EU equality law that legislation could not allow occupational pension schemes to restrict survivor benefits for survivors of same-sex civil partnerships or marriages so that only contributions from 5 December 2005 matter, when these became possible.

Something the Minister said confused me a little. I think he said that the Government were restating the law to avoid and remove any ambiguity. From reading these judgments, I understood that their contents have so far been resting on retained EU law and that, when that sunsets, there will be nothing supporting them. I may have misunderstood, so perhaps the Minister could clarify that. I understood—or perhaps misunderstood —that these regulations were necessary because without them the contents of those court judgments would not be retained.

Presumably, the Government could have amended domestic law to bring it in line with all these judgments. We have had an awful lot of pensions Bills in the last year; presumably any one of them would have been a means for doing this. Can the Minister explain why that did not happen? Since retained EU law rights will sunset at the end of the year, we need changes to be made. These regulations amend the Equality Act to remove the need for an opposite-sex comparator and they amend the Pensions Act 2004 to introduce the same test for unequal treatment when members are entitled to payments from the PPF. They also amend Schedule 9 to the Equality Act 2010 to reflect the framework directive rights with which the legislation was deemed incompatible.

Will the Minister confirm for the record that the effect of these changes is to maintain the position we are in now, resting on retained EU law? Is the position of the survivors of all marriages and civil partnerships now the same, whatever the sex of either the surviving or the deceased member? Is everybody, in any civil partnership or marriage, in the same position, irrespective of the sex of those involved?

These regulations retain one form of protection, as my noble friend Lady Drake articulated, but still we are left with a significant gender pensions gap, an issue to which the House returns periodically. There are various contributory factors, including the carer penalty and the impact of the gender pay gap that means women are more likely to have lower pension contributions. What plans do the Government have for reforms to reduce the gender pensions gap more widely?

One of the contributory factors is the fact that women are less likely to be eligible for auto-enrolment, so will the Minister tell the Committee when the Government intend to implement the provisions of the Private Member’s Bill sponsored by the noble Baroness, Lady Altmann, which enabled the extension of auto-enrolment from age 18 and set contributions from the first £1 of earnings?

As far as I can tell, the draft Occupational Pension Schemes (Amendment) (Equal Treatment) (Northern Ireland) Regulations 2023 seem to mirror the provisions of the previous regulations but amend the Equal Pay Act (Northern Ireland) 1970 and the Pensions (Northern Ireland) Order 1995, instead of the Equality Act and the Pensions Act. Once again, can the Minister confirm that the effect will be the same, albeit just in Northern Ireland?

Finally, I am really interested to hear the Minister’s response to the question from my noble friend Lady Drake: given how close we are now to the end of this year, are there any other areas where DWP has been relying on retained EU law that will be sunsetted in a few weeks? A clear assurance to the Committee for the record would be very helpful on that point. I look forward to the Minister’s reply.

[Viscount Younger of Leckie (Con)]

My Lords, I thank the three noble Lords who have spoken for their general support for these regulations. The noble Baroness, Lady Sherlock, was right when she alluded to there being an element of complexity but, if I may say so, all four of us have seen through that complexity. I appreciate the general support. Nevertheless, I am very aware that a number of questions were raised and, as ever, I will do my best to answer them, in no particular order.

The noble Lord, Lord Palmer of Childs Hill, asked about the WASPI. I understand exactly why he raised that. He will probably expect the only answer that I can give: we are not able to comment on the status of the WASPI at the moment because, as he will be aware, there is an ombudsman investigation ongoing. He has probably heard me say that in the Chamber before; I wish I could say something different, but I am afraid I cannot go any further.

[Lord Palmer of Childs Hill (LD)]

Does the Minister have any idea of when we might hear or when the judgment will allow us to say something?

[Viscount Younger of Leckie (Con)]

I wish I could as well, but it would depend on when the ombudsman is ready to do so, and I am not aware of when that might happen. Of course, we can always ask, but it is fair to say that if we asked, I think we might know what the reply might be. However, that is a fair question.

I said that this was in no particular order. In answer to a question asked by the noble Baroness, Lady Sherlock, on why there is a reference to resolving ambiguity when these rights arose under EU law—that was towards the end of her speech—in the Pensions Protection Fund regulations, references to the compensation cap in the Pensions Act 2004 are removed by these regulations to reflect the decision in Hughes. I hope that makes sense.

The noble Baroness, Lady Sherlock, asked whether I can confirm that the effect is to maintain the current position. Yes, the regulations reflect decisions of judgments relating to the current position.

I think the question that was asked by the noble Baroness, Lady Drake, as well as the noble Baroness, Lady Sherlock, referred to the effect of the Northern Ireland regulations and whether they are the same as the GB regulations. The answer is yes, the effect of the Northern Ireland regulations is just the same as the GB regulations.

The noble Baroness, Lady Drake, asked a very specific question about whether all protections are preserved, and if they are not, which ones would fall away after 31 December 2023. I think that falls into a number of questions she asked about timing, so I hope I can reassure her by saying that, on the timings leading up to 31 December 2023, I am not aware of any issues or concerns over the timing. I hope that gives some reassurance. However, to put a little more into the answer, the noble Baroness may be aware that the Government have decided to allow the Bauer judgment to sunset under the Retained EU Law (Revocation and Reform) Act. This means that former employees whose employer becomes insolvent on or after the sunset date will not have an entitlement under that judgment. However, I reassure her that I am not aware of any other preserved under Section 4 of the European Union (Withdrawal) Act, which I believe she raised.

The noble Baroness, Lady Sherlock, asked whether the Northern Ireland regulations provide the same effect. The answer is yes—I think I have covered that.

The noble Baroness, Lady Sherlock, asked whether anything will change from 1 January 2024 as regards protection provided by the decisions in Hampshire and Hughes, and yes, that is correct. For insolvencies after that date, the same rules will apply because of these regulations.

The noble Lord, Lord Palmer, raised a question about the LEAP exercise, and I hope I can give a slightly longer and more helpful answer in terms of where we are with that. He will know that the DWP became aware of the issue of state pensions underpayments —which was not addressed under previous Governments— in 2020 and took immediate action to investigate the extent of the problem. The Government have fully committed to ensuring that any historical errors are put right as quickly as possible where underpayments are identified, and the DWP will contact the individuals to inform them of the changes to their state pension amount and of any arrears payment that they will receive. My department in its annual report and accounts, particularly for the year 2022-23, published on 6 July 2023 updated figures relating to estimated expenditure and the number of cases affected. The overall number of customers to be reviewed is approximately 678,000; of those, we estimate that 170,000 customers will be affected. Between 11 January 2021 and 31 March 2023, 263,350 cases were reviewed. I can reassure the noble Lord that the department is on track to complete the exercise for category BL and category D by the end of 2023—to get into some granular detail on this. I think I understand that, and I hope the noble Lord will be reassured by it. For missed conversion cases, the exercise will run to late 2024—the end of next year.

The noble Baroness, Lady Sherlock, asked a specific question about whether there was any opposition to retaining the Hampshire judgment. The answer is that there was very little opposition—hardly any, although I am not sure I can give her any more information on that—to retaining it from stakeholders. I think it was to do with the Hampshire judgment that the noble Baroness raised.

17:00

The noble Baroness, Lady Sherlock, asked about needing to make changes as a result of the Walker case, as it was a Supreme Court decision. I think this was to do with Allonby and Walker, to be fair. Although the Walker judgment was a judgment of the UK Supreme Court, it was based on EU law rights, and it is therefore sensible to restate the law addressed in the judgment so that its effects clearly continue after the end of the year. I hope that is helpful.

On the Walker judgment, the noble Baroness, Lady Sherlock, talked about the survivors. Schemes had to seek their own advice to ensure that they were legally compliant with the Walker judgment, and they will need to seek their own advice to ensure that they are legally compliant with the legislation going forward. I hope that this answers the noble Baroness’s question.

Towards the end of her remarks, the noble Baroness, Lady Sherlock, asked about the pensions gap—this question was perhaps wider than these regulations. I reassure her that, as a Government, we have made great strides in reducing the gender pensions gap, with the introduction of automatic enrolment. She will know as well as I do how much we have done in that respect on the enrolment and the Private Member’s Bill we brought forward not so long ago, going from 22 down to 18.

I think I have covered almost all the questions, but I suspect that there may be some more. As ever, I will need to read Hansard carefully, not least to be sure that I pick up the questions from the noble Baronesses, Lady Drake and Lady Sherlock.

[Baroness Drake (Lab)]

I will need to read very carefully what the Minister said—hopefully it will cover all of the points, but, if not, I will drop him a note.

[Baroness Sherlock (Lab)]

On that last point, the Minister mentioned the Private Member’s Bill, but my question was actually about when the Government were planning to implement its provisions—perhaps he could give me a steer on that. I would be grateful if he would read Hansard because, if he thinks that he has answered the questions, I perhaps did not shape them as precisely as I had intended. Could he have a look at that and then come back to me?

[Viscount Younger of Leckie (Con)]

Most certainly— I am grateful that the noble Baroness has put me right on the precise question. I knew what she was asking at the time. On the timing and where we are with the rollout of the Private Member’s Bill, I do not have that to hand—actually, it has been handed to me, so perhaps I do; it is one I prepared earlier. The consultation on implementation is coming soon—I am aware that a consultation comes out of that Private Member’s Bill—but, in terms of actual dates, I am afraid I cannot go any further. But I hope that that directly answered that particular question. I feel that a letter is due. A lot of questions were asked about exactly how this should be, and I pledge to answer them all fully if I have not done so this afternoon.

Motion agreed.