Opinion of Mr Advocate General Warner

My Lords,

This case comes before the Court by way of a reference for a preliminary ruling by the Court of Appeal of England and Wales. It raises questions as to the scope and effect, in relation to sex discrimination in pension schemes, of Article 119 of the EEC Treaty and of certain Council directives.

The appellant in the proceedings before the Court of Appeal is Lloyds Bank Limited, which is one of the big four English clearing banks. The respondents are two young women who were employed by Lloyds Bank as clerical officers but who left its employment while they were still under 25, namely Mrs Susan Jane Worringham and Miss Margaret Humphreys. No secret has been made of the fact that, in this litigation, Mrs Worringham and Miss Humphreys are supported by the Equal Opportunities Commission, which is a body established by a British statute, the Sex Discrimination Act 1975, with the duty of working towards the elimination of discrimination between men and women, and with the power (under Section 75 of that Act) to provide assistance in legal proceedings having that purpose.

It is common ground that male and female clerical officers employed by Lloyds Bank perform, in their respective grades, equal work within the meaning of that expression in Article 119. The arrangements made to provide them with pensions differ, however, in some respects.

All permanent staff of the Bank are, on entering its employment, required to become members of a retirement benefits scheme. There are two such schemes, one for men and one for women. Both schemes are funded schemes managed by trustees. There are six trustees, the Chairman, the Deputy Chairman, the Chief General Manager and the Deputy Chief General Manager of the Bank, a trustee nominated by the Lloyds Bank Staff Association and one nominated by the Banking, Insurance and Finance Union, which is a trade union. The trustees are obliged to, and do, carry out their duties as trustees independently of and without reference to their respective positions as officers of the bank and nominees of the staff association and union.

The two funds are fed by contributions made by the members and by the bank.

Each member, with the exception of women under 25, is required to contribute 5 % of his or her salary to the appropriate fund. Contributions are deducted from a member's salary at source and paid by the Bank directly to the trustees.

Since 1968 the salary scales of all clearing bank employees in the United Kingdom, in the grades that matter in this case, have been agreed nationally in the Joint Negotiating Council for Banking (the JNC). The JNC has recommended that in the case of banks with contributory pension schemes (i. e. schemes under which the employees are required to contribute) the nationally agreed salary scales should be adjusted to provide for the employees' contributions. Of the four major clearing banks only Lloyds operates a contributory scheme. Accordingly Lloyds has instituted salary scales under which its female staff under 25 are paid at the rates agreed in the JNC, while all other staff (i. e. females over 25 and males of all ages) are paid at those rates plus 5 %. The object is to achieve equality in take-home pay, but we were told that in practice the take-home pay of a man under 25 is slightly less than that of a woman of the same age and grade. We were not told why.

By the rules of the two schemes, Lloyds is required to pay annually to the trustees of each fund sums calculated by an actuary on the basis of current and anticipated demands on the fund, in the light of such factors as the number, age, seniority, and marital status of present and of retired staff, and the effects of inflation both current and prospective. Those factors differ from year to year and as between the two funds. The result of the actuary's calculation is expressed as a percentage of the aggregate of the salaries of all the members of the scheme. No part of the bank's contribution is ascribed to any particular member.

There is no fixed mathematical relationship between the proportion of the funds representing employees' contributions and the proportion representing the bank's annual contributions; but the former account for the smaller part. For example, in the year ended 30 June 1979, which was, I understand, a typical year, the total of members' contributions was about UKL 6 million whilst that of the bank was nearly UKL 36 million.

Benefits are paid out of each fund by the trustees according to its rules. Some benefits are mandatory, some lie in the trustees' discretion. Some are payable to the member, others to his or her dependants. Since 1 July 1974, the major benefits under both schemes have been substantially the same for men and women. In either case a member qualifies for benefit after completing 5 years' service or attaining the age of 26. The retirement age is 60 in both cases and retired employees of both sexes are entitled to pensions of 1/720th of their annual salary at retirement for each completed month of service, with a maximum pension of two-thirds of final remuneration. There are, however, some differences between the terms of the men's and the women's schemes. For example, the men's scheme provides for the payment of pensions to the surviving spouse and dependent children of a member who dies after retirement, whereas the women's scheme makes no such provision, and there are differences between the two schemes as regards payments made to dependents on the death of a member in service.

We are told that both schemes have been certified by the Occupational Pensions Board under Part III of the Social Security Pensions Act 1975 and approved by the Board of Inland Revenue under Sections 19 and 20 of the Finance Act 1970. That calls for explanation.

The legislation governing the British social security system (principally the Social Security Act 1975 and the Social Security Pensions Act 1975) provides for retirement pensions to consist of two elements, a basic component, which is the same for everyone, and a variable earnings-related component.

Such pensions are payable out of the National Insurance Fund, which is fed by contributions from earners, employers and the Treasury. The principle of the earnings-related component is that the more a person earns, the more he and his employer contribute and the more he receives by way of pension on retirement. Part III of the Social Security Pensions Act 1975 provides for what has been described as a partnership between the State social security scheme and independent occupational pension schemes such as those here in question. Where an occupational pension scheme fulfils requirements laid down in the Act, its members may be contracted out of the earnings-related part of the State scheme. Among those requirements are requirements as to the minimum annual rate of pension (calculated by reference to the member's salary and period of service with the employer); as to benefits for widows; as to the transfer of accrued rights by members who cease working for the employer before reaching pensionable age; as to the rules governing the commutation and surrender of pensions; and so forth. Upon the issue by the Occupational Pensions Board, which is a statutory body responsible for the oversight of occupational pensions schemes, of a contracting-out certificate the members of the scheme to which the certificate relates cease to belong to the earnings-related part of the State scheme. They and their employer then pay reduced rates of contribution to the State scheme and the members are eligible only for the basic component of the State pension.

Approval of a retirement benefits scheme under the Finance Act 1970 is a different matter. Under Section 19 et seq. of that Act the Board of Inland Revenue may, and in some circumstances must, approve such a scheme if it fulfils certain elaborately prescribed conditions. Approval entails fiscal advantages. For instance the employer's contributions to the scheme are deductible in computing its profits for corporation-tax purposes and excluded from the computation of the members' emoluments for income-tax purposes. Members' contributions are deductible in computing their emoluments. Counsel for the bank told us at the hearing that those tax savings covered about half the total cost of the contributions.

The rules of Lloyds Bank's two schemes governing the rights of members who leave the service of the bank before normal retirement age are similar. In order to comply with Part III of the Social Security Pensions Act 1975 they provide that there shall be either (i) a payment to another contracted-out scheme transferring that person's accrued rights to that scheme or (ii) a payment to the State scheme of what is called a contributions equivalent premium, buying the person back into that scheme. Where a contributions equivalent premium is paid, the person concerned is entitled to a refund of his or her past contributions, with interest, but subject to deductions in respect of part of the cost of the contributions equivalent premium and in respect of income tax. Since a female employee of the bank who is under 25 has made no contributions, she receives no refund.

The fact that, under Lloyds Bank's salary scales, a man under 25 is nominally paid 5% more than a woman of the same age, results in other incidental disadvantages to the woman. In particular any redundancy payment and any unemployment benefit to which she may become entitled will be less than the man's, because such payments and benefits are calculated by reference to gross earnings. For the same reason, she has access to lesser mortgage and credit facilities.

It appears to be recognized by everyone concerned that the position is unsatisfactory. We have been told in outline of the negotiations that have taken place between the management of Lloyds Bank, the Lloyds Bank Staff Association and the Union, with a view to resolving it, preferably by the formation of a single scheme covering both men and women; and of the difficulties in the way of the adoption of that course. We have been told also that those negotiations have been suspended pending the outcome of this litigation.

The litigation was initiated by applications made by Mrs Worringham on 19 May 1977 and by Miss Humphreys on 12 September 1977 for the hearing by an Industrial Tribunal of their complaints about the salary scales fixed for male and female clerical staff of Lloyds Bank under the age of 25. Their cases were, by consent, consolidated and were heard by an Industrial Tribunal at London on 19 September 1977. On 30 September 1977 the Tribunal gave its decision. The Tribunal, whilst recognizing that the arrangements now in force are in certain limited areas inequitable to the female employees, held that the differences in those salary scales were covered by Section 6 (1A) (b) of the British Equal Pay Act 1970, which exempts from the provisions of that Act any provision made in connexion with death or retirement.

The applicants appealed to the Employment Appeal Tribunal. They contended that the payment of an additional 5% gross salary to male employees of Lloyds aged under 25 was not within the exception in Section 6 (1A) (b) of the Equal Pay Act 1970. In support of that contention they relied on Community law, in particular Article 119 of the EEC Treaty. By a judgment delivered on 11 November 1978 the Employment Appeal Tribunal allowed the appeal. It based its decision exclusively on the interpretation of Section 6 (1A) (b) of the Equal Pay Act. It held that, although the purpose of paying an extra 5% to the men was connected with the pension arrangements, the terms of the contract of employment as to pay must be kept separate from terms or provisions as to pensions, and that there was an inequality of pay. The Tribunal accordingly left unresolved the argument about Community law.

The Bank now appeals to the Court of Appeal.

Before the Court of Appeal, it was conceded on behalf of the applicants, in view of the decision of that Court in a case heard in the meantime {Garland v British Rail Engineering Ltd [1979] 1 WLR 754), that the salary differential was exempted from the scope of the Equal Pay Act by Section 6 (1A) (b), and that the applicants could therefore succeed only on the strength of Community law. They relied on Article 119 of the Treaty and on Article 1 of Council Directive 75/117/EEC of 10 February 1975 (the Equal Pay Directive) and, in the alternative, on Articles 1(1) and 5(1) of Council Directive 76/207/EEC of 9 February 1976 (the Equal Treatment Directive). They contended that, by virtue of those provisions, they were entitled to (a) an additional 5% by way of salary and (b) a refund of pension contributions on leaving the employment of the bank.

Such are the circumstances in which the Court of Appeal has referred to this Court four questions, which, in slightly abbreviated terms, are as follows: