A. Good news for occupational pension schemes that practise integration with the state scheme.
In the Shillcock case, on 19 April 2002 the High Court allowed the trustees' and employer's appeal against the Ombudsman's determination. Mrs Shillcock, employed part-time by a private school, had claimed that her exclusion from the pension scheme amounted to indirect sex discrimination. The scheme was integrated with the state scheme via an LEL offset, ie benefits were provided only on earnings above the LEL. Mrs Shillcock earned less than the LEL, so would not have been entitled to any benefits. The Ombudsman had upheld the complaint on the grounds that a much higher proportion of women than men were affected by this policy and it could not be objectively justified.
The judge found that LEL offsets are not discriminatory. Integration with the state scheme could confer objective justification. All employees were able to accrue state pension entitlement on earnings up to the LEL (the fact that some married women might have chosen not to pay full stamp was irrelevant). The policy of paying scheme benefits on earnings above the LEL applied equally to all employees, so there was no discrimination.
B. Tax treatment of contributions to secure backdated membership.
Today the Revenue confirmed in Pensions Update No 131 the tax position on contributions to occupational pension schemes by part-timers given backdated rights to membership following the House of Lords ruling in the Preston case.
In these circumstances, contributions in excess of the normal 15% limit may be paid by the employee, but no tax relief will be available on the excess. To get round this problem, it will be permissible for the trustees and the member to arrange to pay the contributions for earlier years by instalments of up to 15% of annual remuneration. If the employee has left the employment concerned, no tax relief at all will be available on any contributions they pay to the former employer's scheme.
If instead of backdated scheme membership, employer and employees agree on lump sum compensation outside the pension scheme, payments will be tax-free under Schedule E.
Where redress is provided within the scheme for an employee who has already taken benefits, no additional retirement lump sum may be paid. (This is in line with the Revenue's long-standing practice (for post-89 members) that lump sum retirement benefits must normally be paid only once, at the time of retirement i.e. when the employee's pension becomes payable (PN 8.2)). However, if a transfer payment has been made it will be permissible to pay a second transfer payment corresponding to the enhancement of benefits (see PSO Update No 40 para 16).
