Age discrimination and the taxation of pension income


By Robin Allen QC and Dee Masters

In Finland there is a supplementary tax on income from a retirement pension (“the Supplementary Tax”).  It is charged at a rate of 6% provided that the pension income is greater than €45,000.  Crucially, it is paid in addition to the income tax which would ordinarily be levied.

A Finnish national challenged the Supplementary Tax when the Government sought to tax his €460,000 retirement income which was partly derived from a workplace pension fund.  He argued that it amounted to age discrimination contrary to the Charter of Fundamental Rights of the European Union (“the Charter”) and Directive 2000/78/EC (“the Equal Treatment Directive”).

The Charter states that, “Any discrimination based on any ground … such as … age … shall be prohibited” although this prohibition only arises where a Member State is “implementing Union law”.

Similarly, the Equal Treatment Directive imposes an obligation on Member States to ensure that any laws which discriminate on the grounds of age (direct or indirect) are abolished, but its scope is limited to “areas of competence conferred on the Community” in relation to employment and pay.

In light of the limitation on the scope of these instruments, the Supreme Administrative Court of Finland referred a series of questions to the European Court of Justice (“CJEU”) as to the applicability of the Equal Treatment Directive and the Charter to the taxation of pension income in the case of C-122/15.

Judgment from the CJEU is still awaited but in the meantime Advocate General Kokott delivered his opinion on 28 January 2016. It is available here.

He concluded that the Directive did not apply to national legislation which lays down the rate of tax applicable to income from a retirement pension.  He reasoned that a retirement pension derived from a workplace pension could amount to “pay” within the meaning of the Equal Treatment Directive, but, the taxation of workplace pensions fell outside the scope of the directive since the EU had not legislated in that area and accordingly it was an area that fell outside of its competence.  He further concluded that it was not the purpose of the directive to prohibit discrimination in relation to the direct taxation of pension income.

In relation to the Charter, he reasoned that the Supplementary Tax did not restrict the free movement of workers since it did not distinguish between domestic and cross border activities; the tax was applied uniformly regardless of the origin of the income.  It followed that the Charter was not engaged.  Accordingly, the Advocate General has left the door open for the application of the Charter in different circumstances involving the taxation of a workplace pension.

This is a hot topic in Europe at the moment as the CJEU is also considering the extent to which the prohibition of age discrimination is applicable to income tax legislation in a second case – C‑548/15 de Lange.

The CJEU does not always follow the opinion of the Advocate General, so we will have to wait for the CJEU to publish its decisions in C-122/15 and C-548/15 before we finally understand how this important area of the law will develop.  However, if the CJEU mirrors the reasoning of Advocate General Kokott it seems that there is only a very limited scope to challenge discriminatory taxation decisions in so far as they relate to pension income.