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Occupational Pensions for Part-timers
Various court judgements and pending legislation will affect the way occupational pension schemes must treat part-time employees in the future.
Background
Historically, many employers have not allowed part-timers to join their pension schemes (perhaps disallowing all employees working less than a particular number of hours per week) on the grounds that the administration costs of providing the pensions outweigh the size of the benefit granted to those working very few hours.
When part-timers are allowed into schemes, this might be on disproportionately small benefits. For example, a popular scheme design bases benefits and contributions on earnings above the Basic State Pension (or some proportion of that) - in an attempt to dovetail the company scheme with the benefits provided by the State.
Now consider two employees, Louise and Rob. Louise works a full 36 hour week, earning £15,000 per annum. Rob, however, only works for 12 hours, doing the same job, but on one-third the annual salary (£5,000). They are both members of the company pension scheme, which provides benefits based on earnings less £3,000. Therefore, Louise's pension benefits and contributions are based on £12,000, which are therefore 6 times as big as Rob's - based on only £2,000.
The Government is trying to make sure that the whole of the population has sufficient pensions coverage for retirement. Better coverage for part-timers is part of this aim. There are also a number of tricky issues arising if discrimination against part-timers becomes sex-discrimination.
Access
The Equal Pay Act 1970, as modified by the Pensions Act 1995, says that part-timers must be allowed access to pension schemes, unless there are objective reasons not to do so. For example, an objective reason would be that such access would be administratively impractical. Part-timers have a right to challenge this, and if victorious, they must be offered entry into the scheme, back-dated for up to two years. Schemes can claim the contributions that the part-timer would have paid as a member over any period of back-dated service.
However, a recent European Court of Justice ("ECJ") ruling has said that, if the restriction on access is "indirect sexual discrimination", then the two year limit does not apply. No-one knows what limit does apply, but it is thought that in this case, access might be allowed back to 1976 (this has not been tested in the Courts yet).
Note that access must only be granted back as far as the part-timer was employed (and would have been eligible for the scheme if a full-time employee), and the two year limit applies if there was no sex-discrimination. Again, back-dated member contributions can be required. Indirect sex discrimination applies if the majority of part-timers not allowed access to the scheme are male, or if the majority are female.
Whilst it may be that many part-time employees will not wish to pay the historic contributions for back-dated service, there is potentially a very high cost to employers if they have to back-date service for a large number of long-serving part-timers. This would be a particular problem for employers running scheme which do not ask for member contributions at all -part-timers could have their service back-dated at no cost to themselves.
The ECJ also ruled on another part of the Equal Pay Act. This states that part-timers must bring a claim for access to the pension scheme to their employer within six months of termination of that employment. In this case, the ECJ upheld the UK legislation, and so the six month time limit for claims remains.
Benefits
As discussed above, when part-timers are admitted to schemes, it may be on disproportionate benefits. However, the Government is about to issue new regulations concerning this - "The Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000". These are due to come into effect on 3 July 2000, but at the time of writing have not yet been ratified.
These Regulations cover many aspect of part-timers' work, and do not mention pensions in particular, but cover pay and other benefits as a whole. Benefits (and pay) must (in the future - the Regulations have no retroactive effect) be calculated on a pro-rata basis where there are full-time and part-time workers doing comparable jobs (unless there is an objective reason not to).
In effect, for pension schemes, this means that they can still deny access to part-timers on objective grounds, but that benefits must be proportionate if part-timers are allowed in. Returning to the example above, Rob works one-third as much as Louise, so his pension should be based on a salary of £4,000 - one-third of that for Louise. Therefore, in future, any salary offsets applied by pension schemes must be in proportion to take into account actual hours worked.
Summary
Schemes that have denied access to part-timers in the past may have some exposure to reinstate those part-timers in the future: · Only if claim received within 6 months of termination of employment. · Two year limit on reinstatement period unless indirect sex-discrimination proven (in which case limit is probably 1976).
For the future, part-timers must have proportionally equal benefits. This will affect schemes who have a salary offset for benefit calculations if that offset is not reduced to take account of hours worked.
Schemes can continue to disallow access to part-time workers on "objective" grounds.
Paul Hamilton, June 2000.