A recent Court of Appeal ruling reiterates the need for employers to ensure contractual terms setting out PHI entitlement are appropriately limited – and to take advice before making changes to PHI insurance.

The ruling in Amdocs Systems Group v Langton makes clear that an employer wishing to limit PHI benefits to whatever is covered by the underlying insurance policy from time to time, including if that policy is changed to reduce cover, will need to spell this out explicitly and unambiguously in contractual documentation brought to the employee’s attention; any subsequent changes to the cover will also need to be clearly communicated to the employee.  Simply referring in the contractual documentation to the existence of an insurance policy will not be enough to limit cover to the terms of the policy.  As a result, in this case the claimant was contractually entitled to have the benefit from an income protection scheme increase by 5% every year, even though the employer (the transferee after a TUPE transfer) had subsequently altered the insurance policy underpinning the scheme so that it did not include such an annual increase.

The EAT ruling in Pelter v Buro Four Project Service will be more welcome to employers, as it rules out age discrimination claims against an employer in respect of PHI payments ceasing prior to the state pension age, to the extent that this is due only to an increase in the state pension age after payments have started.  In that case the employer had provided access to a PHI scheme under which payments would cease at the then state pension age of 65.  The claimant became incapacitated and starting receiving PHI payments; these ceased when he reached 65 although by that point the state pension age had increased to 66.  The EAT ruled that during the period the employer was providing access to the scheme, when the employee was still at work, the scheme lawfully provided for payments to cease at the state pension age of 65 (under an express exemption in the Equality Act 2010).  By the time that the employee’s state pension age increased to 66, the employer was no longer providing the benefit of access to the PHI scheme; the benefit had crystallised and any payments under the scheme were a matter for the insurer.

This contrasts with the position had the state pension age increased prior to the benefit crystallising: the Equality Act exemption only applies until the state pension age so the employer would have needed to find insurance providing payments until age 66 or be able to objectively justify not extending the cover.  Employers will need to keep the terms of their PHI cover under review as the state pension increases to 67 from 2026 and in the future.


Anna Henderson
Anna Henderson
Professional Support Consultant, London