Tough new law helps disabled people

Changes to the law on disability discrimination giving disabled people new rights in relation to occupational pension schemes came into force on 1 October. It is no longer possible to apply a blanket policy of excluding disabled employees from risk benefits, and schemes will need to make reasonable adjustments for such individuals. We examine the new law and the difficult issues it raises.

From 1 October 2004 the law preventing occupational pension schemes from discriminating against disabled people becomes much tougher. From that date new Regulations and a new Code of Practice come into force that apply to the trustees or managers of occupational pension schemes. The new provisions affect the rules for admitting employees into membership, the benefits provided and the way in which disabled people are treated, including, for example, the means of communications used.

There are over eight million disabled adults in the UK and 7.7% of the members of occupational pension schemes have a long-standing disability or illness. In the vast majority of cases, the disability will have no impact on the cost of providing them with pension benefits, and there will be no reason to treat them less favourably. However, the Disability Discrimination Act 1995 (Pensions) Regulations 2003 leave some grey areas as to whether disabled people can be treated differently in the pensions context in certain circumstances, notably if the cost of providing benefits is substantially greater than it would be for other employees.

In box 1 we summarise the provisions in the Regulations and the Code of Practice, which has parliamentary endorsement, and in box 2 we set out the views of three pension lawyers on some of the difficult issues. Below we discuss how the new law will apply.

Major change in the law

The new Regulations on pensions, and other Regulations dealing with employment matters more generally, have been introduced in order to comply with Council Directive 2000/78/EC, which establishes a "general framework for equal treatment in employment and occupation".

The Regulations amend the existing Disability Discrimination Act 1995. Under the original law, although pension schemes could not apply less favourable treatment to disabled employees, discrimination could be more easily justified. In addition, the exclusion of employers with fewer than 15 employees from the Act's terms has been removed and new sections specifically about occupational pensions have been added.

Under the Act, a disabled person (in the pensions context) is defined as a member or prospective member of an occupational pension scheme who has a physical or mental impairment that has an effect on that person's ability to carry out normal day-to-day activities. The effect has to be (a) substantial (not minor or trivial), (b) adverse, and (c) long term (having lasted or likely to last for at least a year). It includes hidden impairments such as mental illness, diabetes and dyslexia, but excludes, for example, alcohol-related illnesses. Currently, only "recognised" mental disabilities are included, but the government has published draft legislation that would widen the definition in this respect, and also cover people with an illness that has not yet affected their ability to carry out day-to-day activities, eg those who are HIV positive, or those with multiple sclerosis or cancer.

The new provisions apply in respect of service from 1 October 2004, although as law firm Allen & Overy points out, schemes will need to reconsider on a case-by-case basis, with up-to-date medical information, any existing disabled member whose benefits (typically risk benefits) have been restricted and who is still in the employment. This would equally apply to anyone excluded from membership altogether.

Forms of discrimination

The new law establishes four forms of disability discrimination:

A key concept used in sex discrimination legislation of indirect discrimination has not been carried across to disability discrimination. The distinction in the revised Act is between direct discrimination, which can never be justified, and disability-related discrimination, which can.

This distinction is best illustrated by a non-pensions example included in the Code. If an employer has two employees who have been on sick leave for six months, and it dismisses the employee who has been off due to a disability because it does not wish to employ disabled people, but does not dismiss the one who has had a broken leg, that is direct discrimination and automatically unlawful. If the same employer operates a policy of dismissing all employees who take six months' sick leave and thus dismisses both employees, it has not directly discriminated because it has not treated the disabled employee less favourably. However, the employer's policy may give rise to a claim for disability-related discrimination and there may be a claim that the employer has failed to make a reasonable adjustment to its policy, for example, by allowing disability leave.

In the pensions context, this would mean that refusing entry to a scheme, or refusing ill-health benefits, to all those categorised as disabled would clearly be direct discrimination and therefore unlawful. Contrast this with a scheme that introduces a policy that only allows employees to join when first becoming eligible, and thus prevents late entry by a non-joiner who is subsequently diagnosed with an illness likely to lead to early retirement in the near future. At most this would be disability-related discrimination as the rule would apply equally to disabled and non-disabled employees. If a tribunal decided that it was diability-related discrimination, it might well be possible to justify the policy.

In addition to the four forms of discrimination mentioned, the Act outlaws the harassment of disabled people. This concerns conduct that violates the person's dignity, or creates an intimidating, hostile, degrading, humiliating or offensive environment. Trustees will need to ensure that requiring a disabled employee to have a medical examination, for example, might not in some circumstances be considered harassment.

Reasonable adjustments

The requirement to make reasonable adjustments applies if a disabled person is placed at a substantial disadvantage by any "provision, criterion or practice". It includes not only changes to scheme procedures, such as in relation to communications, but also changes to scheme rules. Like direct discrimination, the failure to make a reasonable adjustment cannot now be justified, but determining what is reasonable is of course open to opinion. The duty applies only if the employer knows or could reasonably have known that the person is disabled. The cost of making the adjustment can be taken into account (so, in a pensions context, this may relate to the cost of amending rules, or of offering alternative means of communications). The Code states that it is more likely to be reasonable for an employer with substantial financial resources to have to make an adjustment with a significant cost than an employer with fewer resources.

Unfortunately, the example given in the Code of a reasonable adjustment concerning pensions is inexplicably unhelpful. Many possible adjustments depend on whether cost is regarded as a justification of discrimination in the first place. However, there are a number of possible adjustments that could be made in relation to communications (see below ).

The legislation also requires reasonable adjustments to be made to "any physical feature of premises occupied by the trustees or managers", if it "places a relevant disabled person at a substantial disadvantage". This applies generally and not specifically to pension schemes.

Justification on cost grounds

There seems to be no good reason for denying scheme membership to anyone otherwise eligible, irrespective of what disability they may have, just for the purposes of accruing normal retirement benefits (see the views of our legal experts ). The key issue for pension schemes is likely to be whether a disabled member can be denied access to death and ill-health benefits, and the only conceivable justification for this would be on grounds of cost. Discrimination can in any event only be justified if the reason for the discrimination is "material to the circumstances" and "substantial".

Whether disability-related discrimination can be justified on the basis of cost is unclear. The Code gives the example of an employee with multiple sclerosis who is not invited to join a scheme on becoming eligible, because the employer is concerned that the employee may draw a pension early. It implies that no detailed enquiry is made and says this is likely to be unlawful. The Code does not discuss what the position would be if the same employee's disability were considered on an individual basis and both medical and actuarial evidence obtained suggesting that the cost of providing risk benefits was substantially higher than for other members. A tribunal (or the Pensions Ombudsman) might still decide this was direct discrimination. However, it might accept it was disability-related discrimination and then consider whether this was justified. As Allen & Overy states in a client newsletter, the cut-off point between the two types of discrimination is "somewhat artificial".

However, another example in the Code relates to the exclusion of a scheme member who has diabetes from ill health early retirement benefits. In this example, there was no consideration of the individual circumstances and would probably be unlawful. The inference is that such a member could be excluded from certain benefits if the there were appropriate evidence about that member.

DWP intimation

In a note issued by the Department for Work and Pensions (DWP) during the consultation process on the Regulations, it was stated that "costs are, however, explicitly permitted to be taken into account in determining whether or not an adjustment is reasonable". The note went on to acknowledge concern "that the duty to make reasonable adjustments might require trustees/managers to make payments to individual disabled employees even where that would be contrary to actuarial considerations and/or detrimental to the rights of other, non-disabled, members". It concluded: "This is not necessarily so: in determining whether an adjustment is reasonable in 'all the circumstances of the case', we think that employment tribunals would take into account such considerations, as well as the fact that pension schemes operate on a group (rather than individual) basis. Instead, a group adjustment, benefiting a range of individuals, might be acceptable."

No one will know for certain until cases have come before employment tribunals or the Pensions Ombudsman. However, further evidence that cost could provide justification is contained in the government's regulatory impact assessment issued with the draft Regulations.

Communications

Although the new provisions only apply to service from 1 October, they do apply to future communications about past-service rights.

Reasonable adjustments must be made to cater for any known disabilities. Adjustments that might be made for someone with a visual impairment, for example, could include arranging for scheme literature to be read to them or providing material in large print format, on an audio tape or in Braille. Where benefit illustrations are available online, verbal explanations might be needed. Pension staff may also need to consider one-to-one help for any members with a learning disability (see box 2 ), and in these circumstances drawing the line between explanations and the provision of regulated advice may be difficult.

Communications include not only the provision of information, but also specifically include the operation of a scheme's internal dispute resolution procedure. Correspondence about complaints and the arrangements for any meetings or hearings in connection with the complaint will need careful thought.

The Act also has implications for website design. The Code indicates that making a website for employees accessible to those who use "access software", such as synthetic speech output, would be good practice. Schemes must try to ensure that websites are accessible to all members, including those with disabilities. In an item on its own website*, not aimed specifically at pension schemes, solicitors Wragge & Co states: "A significant challenge for software designers and website owners under the [Act] will be how they cater for people with hearing, visual, motor or cognitive disabilities." It points out that, in addition to the Code, guidelines have been published by organisations such as the World Wide Web Consortium. The guidelines cover the contrast between background and text; the size and format of text; and avoiding graphics in place of text and patterned or loud textured backgrounds.

* Available on the Wragge website (at www.wragge.com/publications/hottopics/default_3338.html), which directs users to www.w3.org/TR/WAI-WEBCONTENT for a checklist of web content accessibility guidelines.