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The statutory "equal treatment" rules are set out in Schedule 5 of the Social Security Act 1989. In addition to their general application to employment-related pension and benefit schemes, there are also specific provisions that apply to members of such schemes who are
- taking paid maternity leave, whether payments are statutory or contractual,
- taking paid paternity leave, whether payments are statutory or contractual,
- taking paid adoption leave, whether payments are statutory or contractual, and
- taking family leave, e.g. parental leave, and receiving contractual payments.
Schedule 5 of the Social Security Act 1989 has broader application than just to pension schemes; it is headed "Employment-related Schemes for Pensions or other Benefits". The principle of equal treatment on the basis of sex is that persons of the one sex may not be treated less favourably than persons of the other sex in any respect relating to any benefit scheme provided by an employer. The principle also extends to
- benefits provided to dependants of scheme members, and
- treatment that differs according to the marital or family status of scheme members of the one sex compared with the other sex.
Therefore, it must be understood that the "equal treatment" principle applies to all employment benefit provisions, including holiday, sick pay, share schemes and pension schemes. However, special provisions apply if the rules covering such schemes adversely affect scheme members during paid maternity, paternity, adoption or parental leave.
Less favourable treatment
The imposition of a requirement or condition in a benefit scheme is regarded as less favourable treatment if
- the proportion of persons of the one sex that can comply is "considerably smaller" than the proportion of persons of the other sex who can comply, and
- the requirement or condition cannot be justified on the basis of sex.
The Act provides a number of specific examples of requirements and conditions that may be justifiable on the basis of sex. These include
- the level of employees' contributions, where the difference is justifiable on actuarial grounds
- the level of employer's contributions, where the difference is intended to remove or limit the difference, as between men and women, in the amount or value of the benefits purchased
- any special treatment afforded to women in connection with pregnancy or childbirth.
However, any difference that constitutes an 'unfair maternity/paternity/adoption/family leave provision' is regarded as not complying with the principle of equal treatment. This is discussed later in these notes.
Compulsory levelling up
Where an employment-related benefit scheme of any kind does not afford equal treatment on the basis of sex, the Act requires that the more favourable treatment provided to persons of the one sex must be provided to persons of the other sex. To achieve this, the Act introduces the concept of "compulsory levelling up". This states that the persons who have been treated less favourably but who are now to receive equal treatment
- must pay contributions and meet any other incidental burden appropriate to the equal treatment, or
- elect instead to receive the less favourable treatment and to pay contributions and meet any other incidental burden appropriate to the less favourable treatment.
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Example 1: An employer provides private medical insurance for employees, funded partly by the employer and partly by the employee. It is available to all full-time employees but not for part-time employees, on the basis that the costs of the benefit are the same irrespective of the hours worked and the costs are therefore relatively expensive for part-timers. As the majority of part-time employees are women, this is less favourable treatment. The employer must offer the benefit to part-timers on the same terms as those offered to full-timers and, as a consequence, the part-timers must be prepared to pay the same charges as are paid by the full-timers or, alternatively, elect not to receive the benefit and to continue to be treated less favourably.
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Unfair maternity provision
However, if an employee is on paid maternity/paternity/adoption/family leave, the concession of electing to receive the less favourable treatment is not available. Special rules apply.
During any period of paid maternity, paternity, adoption or parental leave, employees must be treated for the purpose of benefit schemes as if they were not absent at all but working normally and receiving the remuneration that they would be likely to be paid for doing so. A 'period of paid maternity/paternity/adoption/family leave' is any period for which the employer
- pays statutory maternity, paternity or adoption pay, or
- pays occupational maternity, paternity or adoption pay, or
- makes contractual payments during family or parental leave.
Note, however, that these special rules do not apply during any period of unpaid leave.
A maternity/paternity/adoption provision is "unfair" if it treats employees who are on paid leave in a different manner than they would be treated if they were working normally and receiving their normal pay. As a result, during a period of paid leave, employees must be treated as if
- their membership of the benefit scheme continues as if they were not on leave,
- the accrual of rights under the scheme continues as if they were not on leave, and
- any benefits payable under the scheme that are related to their earnings are determined as if they were not on leave but working normally and receiving their normal pay.
The compulsory levelling-up rules require employees of one sex to receive the more favourable treatment afforded to employees of the other sex. To achieve this, they must be treated as if they were not on paid leave but still at work and being paid normally. As a result, the employer must continue to provide the benefits they would have received had they been at work and to meet the costs incurred in doing so.
However, where the benefit requires employees to pay contributions, they are only required to pay contributions based on the amount of statutory or contractual pay that they are being paid.
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Example 2: While at work, a man accrues entitlement to 30 days holiday pay each year. Not to permit the accrual to continue as normal during his paid adoption leave would be an unfair adoption provision. His accrual during paid adoption leave must be the same as if he were at work.
Example 3: An employer provides an occupational pension scheme, to which both the employer and the employee contribute. The employer's contribution is 10% of the pensionable salary; the employee's contribution is 5%. Throughout the period of a woman's paid maternity leave, the employer's contributions must continue to be 10% of her pensionable salary. It may not be based on 10% of her maternity pay. However, the woman is only required to pay 5% of her maternity pay during the period of paid leave.
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The Department of Trade and Industry describes these requirements, in the context of maternity pay, in the booklet Maternity Rights, under the heading "Occupational Pension Schemes", available at www.dti.gov.uk/files/file18061.pdf.
Some employers have attempted to circumvent these rules by taking advantage of the provisions included in occupational pension scheme rules allowing both employer and employee contributions to cease while an employee is temporarily absent from work. However, a contribution holiday during paid leave appears to be in breach of the equal treatment rules because
- it is an unfair maternity/paternity/adoption/family leave provision because employees are not being treated as if they were working normally and receiving their normal pay, and
- the law does not permit them to elect to accept the unfair maternity/paternity/adoption/ family leave provision.
However, in the case of defined benefit (i.e. final salary) pension schemes, a contribution holiday may not affect the employee's ultimate pension if the period of absence does not reduce the employee's pensionable service. As long as the employee's final pension is not less than it would have been had the employee not taken the leave, a contribution holiday would not be an unfair maternity/paternity/adoption/family leave provision.
The requirement for the employee's pension rights to be unaffected by the period of paid leave is reinforced by the "right to return" provisions set out in the Maternity and Parental Leave etc Regulations 1999 and the Paternity and Adoption Leave Regulations 2002. Employees returning from ordinary maternity leave, ordinary adoption leave or paternity leave are entitled to return with seniority, pension rights and similar rights as they would have been if they had not been absent.
However, during periods of unpaid leave, i.e. during additional maternity or adoption leave (assuming that the employer is not continuing to make contractual payments), or during periods of unpaid parental leave, the equal treatment provisions do not apply. On returning to work, an employee returns with seniority, pension rights and similar rights as they would have been if any period of employment before the additional leave were continuous with the period of employment following it.
The effect is that, on returning to work, the period of unpaid maternity or adoption leave is treated as a gap in employment for pension purposes and, as a result, does not count as pensionable service. For example, if a woman has been in the pension scheme for ten years but has been absent for six months on unpaid maternity leave, her pensionable service is only 9½ years.
...back to 27 July 2006
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For Payroll and Human Resource Professionals
