Pension Schemes and Vegans

Lawyer, Jonathan Dennis, assess the problems vegans face in finding suitable occupational pension schemes. Find out more in Episode 40 of The Vegan Pod

It is estimated that around 22 million people in the UK are members of a work-based ‘occupational’ pension. The latest Vegan Society figures show that approximately three percent of the population of Great Britain – around two million people – identifies as being vegan or following a plant-based diet. Not all vegans are of working age but nonetheless the number of vegans being members of an occupational pension scheme must be significant – and rising.  Despite a rise in ‘ethical’ pension options, very few – if any – occupational pension schemes seem to be offering their vegan members an option that would see their monthly pension contributions being invested in a manner even remotely in accordance with their principles.   

The Vegan Society defines veganism as a philosophy and way of living which seeks to exclude – as far as is possible and practicable – all forms of exploitation of, and cruelty to, animals. The society supports all vegans and the inclusion of as far “as is possible and practicable” in its definition of veganism recognises that vegans live in a non-vegan world and there may be times when living practically as a vegan may present challenges. Regarding workplace pension arrangements, some vegans may find themselves in the position of having to choose between providing for their financial future whilst compromising their beliefs – or adhering to their vegan principles but missing out on a pension.  

Ethical veganism is a protected characteristic for the purpose of the Equality Act 2010 but is the time coming where vegan-friendly pensions can be offered by employers and their pension providers? Could employers and scheme providers be even compelled by law to make such options available to their vegan employees?  Are there other real options for vegans? This short article considers the legal context to such questions. 

The Equality Act 2010 and indirect discrimination 

It is probably no surprise to learn that there is no explicit legal obligation on employers or scheme providers to offer vegan-friendly pension options. The best (and possibly only) legal avenue for a vegan who seeks the help of the law to compel their employer or scheme provider to offer a vegan-friendly option is via the Equality Act 2010 – on the basis that to fail to do so would amount to discriminatory treatment.   

Discrimination in pension schemes is explicitly prohibited under section 61 of the Equality Act, with section 120 providing that it is the Employment Tribunal who has jurisdiction to hear claims in relation to breaches.  The Pensions Ombudsman and the Pensions Regulator are also viable venues in which to bring a complaint. 

Irrespective of the choice of venue, the legal hurdles are largely the same.  In order to succeed, a vegan claimant would need to prove that they are subject to discrimination as a result of the limited pension on offer. The basic ‘ingredients’ required to prove this indirect discrimination (it is not direct because it is safe to assume that no employer or scheme would say, “vegans cannot join this scheme.”) are set out in section 19(2) of the Act:  

1. The employer or pension provider applies to vegans a provision, criterion or practice (a ‘PCP’). 
2. The vegan claimant has a protected characteristic.  
3. The PCP would apply to persons who do not share the vegan’s protected characteristic. 
4. The PCP puts (or would put) persons with whom the claimant shares the protected characteristic at a particular disadvantage as compared to others. 
5. The PCP puts the vegan claimant at that disadvantage. 
6. The employer or scheme cannot show that the PCP is a “proportionate means of achieving a legitimate aim”. 

In our hypothetical claim, the PCP is the practice of offering only investment options that are unsuitable for vegans.  The protected characteristic is of course ethical veganism. The particular disadvantage would be being unable to take advantage of an occupational pension scheme and all the clear financial implications of that. 

So, ticking-off points 1 to 5 – provided our claimant is clear in their personal ethical veganism¹ – ought not to be too much of an ask. After that, it is over to the employer to show that the PCP is justified as a proportionate means of achieving a legitimate aim.  

And this is where matters start to get more tricky for our vegan claimant.   

No doubt, employers and scheme providers will be well-prepared to argue that not offering a vegan-friendly investment option is indeed a proportionate means of meeting a legitimate aim. Principle among the arguments is likely to be that a balanced (and therefore financially viable, as well as legally compliant) investment portfolio cannot be put together with only vegan-friendly businesses – because there are simply not enough of them. To set up and offer such a fund would therefore bring the pension manager into conflict with various pension investment legal requirements.   

It is a legitimate aim for pension scheme managers to aim to run a financially viable pension scheme, for all members. Schemes are likely to be well-prepared to show a tribunal that offering a vegan-friendly option would be tantamount to asking non-vegan members to subsidise the vegan members because the impact on the wider scheme (in terms of yield) would be to reduce the pension benefits of those non-vegan members. Claimants can also expect to hear that it would be impossible for employers and schemes to determine in every case if someone is truly vegan or not, as well as claiming to be nervous about the prohibition of inducing members to leave the occupational scheme (see the Pensions Act 1995, section 54). Whilst these sort of more practical concerns (and doubtless there will be others) are unlikely to be real legal obstacles, in circumstances where a vegan is proactively approaching the employer to find a work-around to a highly unsatisfactory – and really quite critical – problem, they may prove to be real blockers unless court action is taken. 

The objection in relation to the difficulty in setting up a balanced and legally compliant vegan-friendly fund remains real though and will need to be overcome if vegans wish to use the Equality Act to compel employers and/or scheme providers to offer vegan-friendly options in occupational pension schemes. The Employment Tribunal will seek to balance the reasons given by the employer or scheme for not making a vegan option available against the impact of the discrimination on the complainant. The more serious the impact, the more persuasive the employer’s justification will need to be.  And the more difficult it is to deliver a vegan-friendly solution in practice then the more unlikely it will be for a court to order a scheme to deliver one. Hence, it seems that the major hurdle currently is proving that a vegan-friendly option is something that can be delivered, economically, now.  And this is a burden that will be on the claimant to prove, which given the complexities of pension scheme economics and the knotty regulatory environment that schemes operate in – plus sophisticated and well-prepared defendants – will need careful preparatory work and almost without doubt, an effective expert witness. 

Other Remedies: Self-Invested Personal Pensions (SIPPs) 

So where does this leave our vegan claimant?  Aside from seeking a pension option within the employer-offered scheme, what other solution could they press for?   

An alternative ask could be for employer contributions to be placed in a suitable fund of the employee’s choice which complies with their ethical views.  Many employers will already allow a transfer of the existing fund from the occupational scheme into a SIPP: a pension where the member controls investments. But a SIPP usually comes with certain restrictions that may be off-putting for vegan members, notably the requirement to firstly, have invested in the standard occupational fund, and secondly, to leave some residual money in the occupational pension fund.  Although probably far from ideal, a SIPP may currently offer vegans an opportunity to choose their own investments, whilst enjoying most if not all of the benefits of a pension scheme. Whether employers will agree to this, or can be compelled to, remains unclear. Should legal action be needed, the Equality Act issues set out above would provide the underlying legal framework for a claim, as there is currently no specific requirement on employers to support a SIPP. 

What next? 

Pensions in one form or another are fundamental to financial security for almost everyone in the UK. Forcing vegans to choose between that security and their ethics puts them at a huge disadvantage and with the vegan population growing this is an issue that is unlikely to go away. 

As far as a court challenge goes, it does seem that without clear answers for a court on the how of a vegan-friendly option (delivered by credible expert evidence) any claim that seeks to compel a scheme to provide such an option will struggle.  Pressing employers to make contributions available to a SIPP may be the best option currently, although for a number of reasons, it is unlikely to offer a perfect solution. 

More information on the experience among vegans would really assist in considering future options.  Some questions for consideration and discussion: 

1. Are vegan-friendly investment options currently available within occupational schemes, at all?  If so, how does the performance of these compare to other non-vegan options? 
2. What arguments have vegans come up against in pressing their employers or schemes for a vegan-friendly pension option, or solution? 
3. Are SIPPs the best work-around currently?  What issues do they present for vegans?  What experience is there of them being used by vegans? 
4. Are there any other possible solutions to the issue? 

Jonathan Dennis is an experienced lawyer who has worked in both the private and public sectors. Jonathan specialises in pensions regulation and legislation and has been providing pro bono advice to a vegan whose case is discussed by Jonathan and financial expert, Chris Welsford, in Episode 40 of The Vegan Pod.