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If permanent health insurance benefits end at 65, is there a case for age discrimination?

Employers have broad obligations imposed upon them under the Equality Act 2010 (EqA 2010) not to discriminate against employees.

These obligations include prohibiting discrimination with respect to terms of employment and in the way that the employers afford their employees with access to benefits and opportunities.

A common benefit offered by employers is a permanent health insurance scheme, pursuant to which, the insurer will provide the employee with an income should they become permanently incapacitated and thus unable to work. This is a valuable benefit to both employers and employees, as employers do not have to fund payments and employees have the reassurance that they will not go without pay should an unfortunate event occur.

There is an exception (‘Exception’) under the EqA 2010, whereby employers cease providing health insurance schemes (and other insurance or related financial services) to employees when they reach the greater of the age of 65 or state pension age if higher. The rationale for this is to save employers from disproportionately high insurance premiums for their older workers.

The recent case

In the recent EAT decision of Pelter v Buro Four Project Limited, the EAT had to consider whether the Buro Four Project Limited (the ‘Respondent’) directly discriminated against Mr Pelter (the ‘Claimant’) because of age when the PHI Scheme stopped paying the Claimant benefits when he reached the age of 65.

The issue was that the Claimant’s state pension age increased from 65 to 66 in line with government statute and therefore the Claimant wanted the benefit payments to continue until the age of 66.

At the time that the Respondent entered into the PHI Scheme, the Claimant was already 65 years old. Therefore, during the time that the Respondent provided staff with access to the PHI Scheme, the Claimant was not eligible and the Respondent utilised the Exception in the EqA 2010 to refuse the Claimant access to the scheme.

The EAT reasoned that it is the nature of a PHI Scheme for “the situation to crystallise upon the employee becoming incapacitated for work so as to trigger the payment of benefits. Thereafter, payment of benefits is a matter for the insurer”.

Thus, the EAT held that it was the insurer, not the Respondent, that ceased payment of the benefits to the Claimant when he reached the age of 65, in accordance with the terms of the scheme which “crystallised” when the Claimant became incapacitated for work. Crucially for the Respondent, this date of crystallisation was prior to the date that the Claimant’s state pension age rose from 65 to 66. In other words, once the Claimant had become eligible for the payment of benefits under the existing scheme, the Respondent was not required to rewrite the scheme and provide the Claimant with ongoing permanent health insurance.  

Therefore, the EAT held that the Respondent had not discriminated against the Claimant on the grounds of age.

What would happen if the Claimant’s state pension age rose before the date of “crystallisation”

In this instance, to benefit from the Exception, the Respondent would be obliged to provide access to a PHI Scheme which provided for benefits up to the higher state pension age, whatever that may be at the relevant time (before “crystallisation”). Here, this would be the age of 66. 

However, it is worth bearing in mind that employers do not need to rely on the Exception. It is possible to justify providing access to a scheme that does not provide benefits to the higher state pension age where the policy is a proportionate means of achieving a legitimate aim. This could include reasons related to succession planning, for example.

What do you need to be doing now?

Employers need to be wary of age discrimination claims in this field because this decision has shown that employees are willing to litigate for access to their benefit entitlements. They need to keep abreast of what the state pension age is and when it changes (which will almost certainly be an increase) and ensure that where they provide benefits, for example PHI Schemes, the insurer provides those benefits up to that given state pension age.

If they chose to stop benefits prior to the state pension age, they must be prepared to justify this decision as a proportionate means of achieiving a legitimate aim. If this is the case, employers must ensure that they document their reasons, and have a clear rationale, for such a decision to ensure that they will not be found liable for age discrimination in the Tribunal.

If you are an employer and you need assistance dealing with any of the issues touched upon in this article, please reach out to our expert Employment Team


These notes have been prepared for the purpose of articles only. They should not be regarded as a substitute for taking legal advice.

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