BTPS: Unreduced Early Pension
28 March 2009
The option to leave BT and take an unreduced pension from the BT Pension Scheme (BTPS) with company consent after 40 years pensionable service is being removed from 31st March 2008. This announcement has generated understandable concern and disappointment among many members.
It is important to stress that these changes have been triggered as a result of changes to the law.
The change to the 40-year rule is a result of the Age Discrimination Act 2006, the associated Regulations and the potential threat of legal action against the BTPS. The Age Discrimination law prohibits both direct and indirect discrimination on the basis of age unless there is a relevant exemption.
The current arrangement provides for an enhanced pension to be paid earlier than the normal pension age of 60 where a member has 40 years pensionable service and retires. This is a pension enhancement because the normal early retirement reduction that would apply to other Section A/B members is not applied. For example, someone retiring with 39 years service before 60 would have the early retirement reduction applied. Similarly, those who decide to draw their pension before the age of 60 but stay working for BT have the early retirement reduction applied, even if they have 40 years pensionable service.
However, the Age Discrimination Regulations prohibit the payment of enhanced pensions below the normal pension age. The relevant Government guidance on this states "Where the minimum age is before the early retirement pivot age relevant to the benefit in question the benefit must be actuarially reduced and cannot be enhanced". Other sections of the Regulations provide exemptions allowing enhancements on grounds of redundancy and ill health. So, enhancements for these reasons can continue.
The service element in the current rule can be seen as indirectly discriminatory. This is because it is likely to exclude younger members (such as 51 year olds) from the benefit as compared to older members (such as 58 year olds) who are significantly more likely to be able to meet the 40 years pensionable service threshold. Therefore, there is a significant risk of claims from members over age 50 who apply to leave service and draw their pension early and who could claim against the BTPS and seek unreduced pensions.
The Trustee of the BTPS and BT have determined that this risk cannot be ignored. It is in order to protect the whole BTPS from such claims and associated potential costs that the rule change has been made.
Legal advice taken by the Union has confirmed that the existing rule is clearly indirectly discriminatory on the basis of age and that there is no clear exemption to this arrangement in the Age Regulations. Our advice also confirms that if BT were to attempt to justify the existing arrangements in the courts without a clear exemption there is a very considerable risk that the company would fail.
BT has agreed to the Union's request that active members leaving the BTPS after the age of 60 but remaining in employment will be given the additional option to defer drawing their pension until such time as they leave service/retire.
Furthermore, the ability to retire after 40 years pensionable service with an unreduced pension is not a guaranteed benefit of the BTPS. It is subject to the consent of the employer. Even if the status quo was maintained, BT could simply stop allowing such retirements under the 40-year rule using the discretionary power it already has. However, this would effectively mislead members of the BTPS, and is not an approach that we could have supported.
While the changes to the 40-year rule will be a disappointment to those who have been planning to ask to leave under this arrangement, the change should be seen in the context of other changes that the CWU has been arguing for. The ability to allow those with 40 years pensionable service before 60 to build up unlimited pensionable service, and the ability to defer pensions at age 60 and gain an actuarial enhancement, are changes that improve current arrangements. These are not required under the new legislation and have been introduced following negotiations with the Union. These new options will be attractive to the many members who have indicated that they want to build up more than 40 years service and/or remain in post beyond 60.