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Ill-Health Retirement Pension Payment Based on Reduced Hours Didn’t Amount to Discrimination

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The Court of Appeal has held that a disabled person who had taken ill-health retirement with a pension based on the reduced hours he had been working as a result of his disability, rather than his full-time hours, had not suffered discrimination arising from his disability in The Trustees of Swansea University Pension & Assurance Scheme and another v Williams. This is a useful decision for employers with pension schemes offering early ill-health retirement calculated on the basis of an individual’s final salary before retirement.

Mr Williams suffered from Tourette’s Syndrome, obsessive compulsive disorder, depression and other psychological problems. He had worked full-time for the University for ten years before reducing his hours by half as a result of reasonable adjustments agreed by the University. When he became incapable of continuing work he took ill-health retirement. Under the pension scheme rules he was entitled to an accrued pension and an enhanced pension based on his final salary at retirement. He claimed that the failure to base his pension on the full-time salary he had received prior to his reduction in hours amounted to unfavourable treatment because of something arising in consequence of his disability.

At first instance the employment tribunal held that Mr Williams had been disadvantaged by receiving a lower pension because his disability resulted in him working part-time. This amounted to less favourable treatment and the tribunal concluded that the pension scheme was discriminatory. Although the tribunal appeared to accept that the University had a legitimate aim to protect, it did not accept that the treatment had been a proportionate means of achieving that aim.

The Employment Appeal Tribunal (EAT) disagreed. It pointed out that the ill-health retirement scheme only applied to people who were disabled so it was inherently designed to benefit disabled people. The scheme treated disabled people favourably when compared to non-disabled people. In order to establish that he had been treated “unfavourably” a person would need to show that he was not in as good a position as others generally would be. The Court of Appeal has upheld the EAT’s decision.

Nicola Ihnatowicz, Employment Partner at Trowers & Hamlins LLP said:

“It is not uncommon for employees who are suffering from a disability to agree to a reduction in hours as a reasonable adjustment which enables them to continue working. Indeed employers are under a duty to consider and make reasonable adjustments for disabled employees. If the employee then takes ill-health retirement it is likely that the provisions of any defined benefit pension scheme will base the pension on their final (reduced) salary at retirement or a career average.

“This decision will come as a relief to employers who are faced with employees taking early retirement as a result of ill-health. As the Court pointed out it makes a nonsense of a scheme which is intended to be advantageous to disabled employees, to state that it was “unfavourable” simply because it could have been even more advantageous.”