What to look out for with age-based contribution structures

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The article was first published by Pensions Expert on 13 January 2017, copyright FT

Pension schemes enjoy several legal exceptions that allow them to have rules relating to age without committing age discrimination under the Equality Act 2010.
These mean schemes can have age-based contribution levels if the purpose is to equalise or make “more nearly equal” the benefit.

Ruth Bamforth, senior associate at law firm Walker Morris, said there can still be a difference in the final benefits, however.  “The guidance is not very scientific as to what ‘more nearly equal’ actually means,” she said. “The idea would be to get some actuarial advice to satisfy the test.”  Bamforth said if age bands are in place, then the fewer there are, the bigger the potential difference between them, which could make it harder to meet the testSo you couldn’t have bands for young people at 1 per cent and then suddenly 15 per cent… but it doesn’t mean to say that you can’t have a stepped system,” she explained.

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