Pension contributions based on age were not unlawful discrimination

The Supreme Court has ruled in a fundamental case as to whether pension contributions based on age were unlawful discrimination.

At the age of 29, an employee was employed with a company having a mandatory pension scheme. The contributions to the scheme were based on age with the effect that employees under 35 contributed 3 % of their salary, while the employer contributed 6 %, whereas employees over 35 received a higher employer-paid contribution. The contribution increased along with the employees' age.

The employee claimed that the scheme constituted unlawful discrimination due to age.

The European Court of Justice: Pension contributions based on age may be lawful

The case was presented to the European Court of Justice (ECJ), which stated that the special exemption from the prohibition against discrimination, which applies to age limits in relation to occupational social security schemes, cannot be extended to apply to pension contributions based on age.

The pension contributions based on age reflected discrimination and were therefore only lawful if objectively justified by legitimate purposes and if the  means for achieving these purposes were appropriate and necessary.

The ECJ stated three legitimate purposes which the company's pension scheme observed:

  • the older employees could save a reasonable amount in a short time even if they started working for the company late in their career;
  • at an early stage, the scheme included younger employees and the lower contribution resulted at the same time in the younger employees having a larger part of their monthly salary at their disposal; and  
  • the scheme took into account the necessity of covering the risks of death, incapacity for work and serious illness for which the expenses increase with age.

The ECJ then left it to the Danish court to assess whether these purposes were actually pursued in a consistent and systematic way and whether they were proportionate.

Pension scheme with contributions based on age was lawful and proportionate

The Supreme Court found that because the scheme applied equally to all employees, the company had pursued the legitimate purposes in a systematic and consistent way.

According to the Supreme Court, the scheme did not go beyond what was strictly necessary to achieve the intended purposes. The Supreme Court made a balancing of whether the discrimination of younger employees was counterbalanced by the advantages obtained by the employees by being covered by the scheme based on age.

In this connection, the Supreme Court gave decisive weight to the fact that the company by introducing a "waiting period" could have excluded younger employees completely from the right to participate in a pension scheme.  Instead, the company had chosen a model according to which the younger employees were offered a scheme, where the contributions were based on age, however.

Based on an aggregate assessment, the Supreme Court found that the pension scheme did not go beyond what was considered necessary in order to achieve the intended purposes.

Comments

The Supreme Court found - not surprisingly like the ECJ - that the assumption in the Non-Discrimination Act that pension contributions based on age are generally lawful was incorrect.
However, the Supreme Court ruling is specifically justified by the construction and application of the pension scheme in question. However, it must be assumed that the purposes considered legitimate by the ECJ and the Supreme Court also apply to many other pension schemes with contributions based on age.

We must therefore assume that if contributions based on age are used consistently and systematically, it will be possible to get through the eye of a needle as regards such schemes in the future.

contacts

Marianne Lage

Partner

Maria Schmiegelow

Attorney