Permanent health insurance (PHI) or income protection cover is a popular contractual benefit offered to staff. If a worker has a long-term illness and cannot return to work, the cover provides them with a percentage of their salary. Although some employers self-fund this benefit, many take out insurance cover. Direct age discrimination occurs where, because of age, a worker is treated less favourably than a comparator of a different age group (for example, refusing access to a certain benefit). However, since the abolition of the default retirement age, a limited exception provides that it is not unlawful age discrimination for an employer to ‘make arrangements for, or afford access to’ insurance or a related financial service (such as PHI cover) which ends when the employee reaches the greater of age 65 or state pension age. The EAT has recently considered whether an employee was subject to direct age discrimination when his PHI benefits ceased when he reached age 65, a year before his state retirement age.

P was a director and employee of a project management company. P’s director’s service agreement made provision for PHI cover, subject to ‘the rules of such PHI Scheme’. The PHI scheme provided that: (a) once a member was incapacitated the terms and conditions of the policy immediately prior to their incapacity would determine their benefit; and (b) membership of the PHI scheme would cease on the earliest of a number of events, which included a member attaining age 65. At the time the PHI scheme commenced P’s state pension age was 65. On 6 April 2011, the default retirement age of 65 years was abolished. 

In early July 2011, P fell ill and went on sick leave. By autumn 2011, it was clear that P could not return to work and in November 2011, a claim was submitted under the PHI scheme. This PHI claim was initially rejected by the insurer. On 3 January 2012, P’s state pension age was increased from 65 to 66. On 5 March 2013, the insurer accepted P’s PHI claim and backdated it to the commencement of P’s sickness absence on 3 July 2011. On 30 June 2019, the employer gave P 18 months’ notice of termination of his employment and P subsequently brought an age discrimination claim because his PHI benefits would cease when he reached 65, whereas his state pension would not start until he was 66. P stopped receiving PHI benefits when he turned 65 on 7 March 2020 and his employment terminated on 31 December 2020.

The tribunal dismissed P’s claim and P appealed. The EAT dismissed P’s appeal and upheld the tribunal’s decision. During the period that the employer provided the employee with access to the PHI scheme it was lawful (in accordance with the limited exception outlined above) to provide employees with access to the benefit of a PHI scheme under which payments would cease at state pension age, which was then 65. P’s situation crystallised when he became incapacitated for work as this triggered the payment of PHI benefits and froze the terms and conditions of the policy on the date immediately prior to his incapacity. The payment of PHI benefit from the point of crystallisation was a matter for the insurer, not the employer. 

The EAT also made non-binding comments to the effect that it considered it ‘strongly arguable’ that, if P had still been at work when his state pension age increased to 66, in order to rely on the limited exception, the employer would have needed to find insurance under which PHI benefits would be paid until age 66. However, had the employer not done so, it was theoretically possible to defend a direct age discrimination claim if the employer could establish that providing access to a scheme that did not provide benefits to state pension age was objectively justified as a proportionate means of achieving a legitimate aim. Employers may therefore want to review the terms of any PHI cover they provide to check that this continues to keep track with state retirement age. 

Pelter -v- Buro Four Project Services Ltd [2022] EAT 105