Are retirement ages in PHI schemes age discriminatory?

Permanent health insurance benefits are valuable benefits – both to an employee and to an employer. However, they also bring with them some real difficulties, one of which is related to age discrimination when it comes to stopping payments.
Back in 2012 the ET considered whether an employer could stop making payments under a PHI policy due to an employee’s age. In the case of Whitham v Capita Insurance Services Limited, the insurer would no longer pay the employee under the PHI policy as the employee had reached the age of 55 which was the cut-off age under the terms of the scheme. The employer was found to be directly discriminating against the employee by stopping payments to him (bearing in mind that it usually works by the employer paying the employee, and the insurer paying the employer). The ET further found that the employer indirectly discriminated on the grounds of age by failing to transfer the employee to a scheme which would continue payments up to the age of 65.
But phew! Earlier this year the EAT overhauled the approach taken in the Whitham case, in Smith v. Gartner UK Limited. In the Smith case, Ms Smith first received a payment under her PHI scheme in May 2003 due to ill health. The terms of the scheme in place at the time were that she would be paid until she was 60. In 2007 Gartner informed all employees via email (including Ms Smith) that for income protection benefit, the age limit would increase in accordance with legislative requirements (ie to 65). But in 2014 she was told her benefits would stop at the age of 60.
Ms Smith bought a claim for direct age discrimination and the unlawful deduction of wages. The ET struck out both claims at a preliminary hearing, on the basis that the reason not to pay her until the age of 65 was due to the terms and conditions of her PHI scheme that were in force at the time. At the time when the new scheme with age 65 was brought in, she was already benefiting under the old scheme and did not fulfil the criteria to benefit under the new scheme.
The EAT rejected her appeal, primarily on the basis that the decision to fix a retirement age of 60 was the insurer’s, not Gartner’s.   In addition, the EAT found that the general email that went to all to raise the retirement age had not validly varied the terms of the PHI scheme. The EAT further considered the decision of Whitham, and whether an employee should be entitled to transfer to an alternative scheme which would allow benefits to be received until a higher age. It was held that Ms Smith did not benefit from this entitlement because she did not meet the requirements of the new scheme; she was already claiming under the previous policy and was not actively in employment at the time she made the claim.
The Smith case did not however address whether an employer can introduce a new PHI scheme from employees, which is unavailable to those already claiming under the previous scheme.
What does this mean for employers?

  • Employers should ensure that what they offer employees in terms of a PHI scheme via insurers is drafted appropriately, and consider the terms of any arrangements with insurance providers.
  • In particular, ensure that you are not left on the hook to make up any shortfall if the insurers refuse to pay out.
  • Employers should seek legal advice where they are terminating the employment of someone in receipt of PHI benefits, or are currently making a claim for such benefits.

NOTE: It is rare that a tribunal would strike out a discrimination claim at a preliminary hearing stage, prior to further evidence, and therefore the above case should be relied on with some caution.