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Report from barrister warns LGPS board over non-compliance with Sharia law

The Local Government Pension Scheme (LGPS) faces both potential legal actions for equalities over whether or not it complies with Sharia law, and over whether any alternative might create unfairness, it has been reported.

Objections on the basis of Sharia law could arise because of the LGPS’s funded nature and the role of interest on investments.

Its Scheme Advisory Board sought advice from barrister Lydia Seymour, a specialist in pensions and employment law practice at Outer Temple Chambers.

She was asked to advise on; the risk of a successful claim for discrimination from an eligible employee complaining of a failure by LGPS employer to provide a Sharia Law compliant scheme; whether there was a potential human rights challenge in addition to any discrimination challenge; the potential risks and consequences of providing a Sharia law compliant scheme.

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Ms Seymour was not asked to advise on whether the LGPS was itself compliant with Sharia law.

The board said a number of LGPS member authorities raised the issue of members opting out on the basis of their religious belief – which appeared limited to Muslims concerned about funds and investments not being Sharia compliant.

A board report together with Ms Seymour’s advice said: “Employers are becoming concerned about potential discrimination claims being brought in the Employment Tribunal by employees who feel excluded from membership of the LGPS due to their religious beliefs. At present there is no alternative pension provision with their employer beyond the LGPS.”

She advised that taking pre-emptive action, such as exploring the legal issues and procuring advice, would be an important part of any future defence.

The report noted: “At a high level, her advice is that at present it is arguable whether employers have the legal power to offer an alternative to the LGPS. If that were to be clarified as permissible, offering alternative pension provision could most likely not be limited just to Muslim employees who opt out of the LGPS by reason of their religious beliefs.

“Any alternative provision (which would probably be a [defined contribution] scheme offering inferior benefits to the LGPS) would need to be offered to all employees.”

It said there would be “obvious implications for employers and administering authorities of offering and administering more than one scheme”, and also the possibility of employees opting out of the LGPS other than for religious reasons, for example to join a cheaper scheme but with lesser benefits.

The board was recommended to seek the opinion of an Islamic scholar on the LGPS’s compliance with Sharia law.

Ms Seymour said in her advice that the issue of compliance was complex but the Islamic Finance Guru website had concluded the LGPS is Sharia compliant.

If an LGPS member body did offer an alternative Sharia-compliant scheme it would have to consider the consequences for other employees of offering an alternative scheme to Muslim employees, whether any other group of employees might seek alternative schemes and the risk that alternative scheme could in themselves give rise to discrimination allegations.

She said: “If an LGPS authority chooses to offer an alternative pension scheme to Muslim employees who opt out of the scheme for religious reasons then that scheme would also need to be offered to all employees.

“Any restriction of the offer would be direct discrimination on the grounds of religious belief.

Ms Seymour pointed out there was no ‘hierarchy’ of protected characteristics by which any religious or philosophical belief is any more or less important than any other.

“Hence, when considering whether to provide an alternative pension scheme to Muslim employees, an LGPS employer would also need to consider whether there are any other groups which might argue for alternative scheme, and the overall implications of allowing such alternatives.”

Mark Smulian

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