Same sex, same pension
Pensions briefing: scheme trustees will need to review benefits payable, and funding implications, following the Supreme Court decision in Walker v Innospec Ltd, on rights of same sex couples
MAUREEN BURNS, ASSOCIATE, DWF LLP
The Supreme Court decision in Walker v Innospec Ltd  UKSC 47 (12 July 2017) brings some welcome clarity on survivors’ benefits for same-sex married couples under occupational pension schemes.
Under the Marriage (Same Sex Couples) Act 2013 and Marriage and Civil Partnership (Scotland) Act 2014, same-sex couples in the UK have been able to marry, and civil partners have been able to convert their civil partnership to a marriage since 2014. Under the legislation, such spouses have broadly the same legal rights as opposite- sex spouses. A non-discrimination rule is implied into the rules of occupational pension schemes by the Equality Act 2010, prohibiting discrimination on the grounds of sexual orientation. However, an exemption contained in para 18 of sched 9 meant that occupational pension schemes could restrict the period of service on which a surviving same-sex spouse’s or civil partner’s benefit could be based, to the deceased member’s pensionable service (in respect of non-contracted-out benefits) from 5 December 2005, when the Civil Partnership Act 2004 came into force.
Following criticism of the exemption, legislation was introduced, requiring the Government to review the differences in survivor benefits provided by occupational pension schemes for opposite-sex and same-sex couples in legal relationships and permitting it to make changes to the law to address inequalities. Although a review was undertaken by the DWP and HM Treasury in 2014, no decision on whether to change the law has been made.
In the meantime, many schemes have relied on the exemption when providing benefits for civil partners and same-sex spouses.
CHALLENGING THE RULE
John Walker worked for Innospec from 1980 to 2003, when he took early retirement. He had lived with his partner since 1993. Their civil partnership was registered in January 2006 and they subsequently married. In 2006 he sought confirmation from Innospec that, in the event of his death, they would pay a full spouse’s pension to his civil partner. Innospec advised that in terms of the scheme rules, as Walker’s pensionable service predated 5 December 2005, his civil partner would be entitled to a pension based on his contracted-out rights of approximately £1,000 p.a. If Walker was married to a woman on his death, she would be entitled to a pension of approximately £45,000 p.a.
Walker claimed this was unlawfully discriminatory on the grounds of sexual orientation and raised a claim in the employment tribunal, which held that the exemption contravened the Equal Treatment Framework Directive (2000/78/EC), implemented in the UK from 1 December 2003. Innospec appealed and the tribunal’s decision was overturned. Walker’s appeal to the Court of Appeal was dismissed and he appealed to the Supreme Court.
Allowing the appeal, the Supreme Court declared:
- The exemption was incompatible with the plain effect of the Framework Directive and had to be disapplied; and
- Walker’s spouse, provided they remained married at the time of Walker’s death, was entitled to a spouse’s pension calculated on all of Walker’s years of service with his employer.
In coming to its decision the court acknowledged that the EU does not impose a requirement on member states to provide a status equivalent to marriage for same-sex partnerships; but the UK had chosen to do so. It was directly discriminatory contrary to the Framework Directive for an employer to treat a same-sex partner in such a partnership less favourably than an opposite-sex spouse.
The court confirmed that as a general rule, EU law applies prospectively. The principles of “no retroactivity” and “future effects” draw a distinction between the retroactive application of legislation to situations which were “permanently fixed” before the law comes into force (generally prohibited unless expressly provided for), and applying the law to situations which are continuing (generally permitted).
It acknowledged that the application of these principles to identify the point at which entitlement to a pension becomes “permanently fixed” presents a challenge when dealing with entitlement to an occupational retirement pension which accrues over many years based on actuarial assumptions in place at the time. However, the court confirmed that entitlement to a survivor’s pension becomes “permanently fixed” at the date that it becomes payable, and the denial of the spouse’s pension at that point would amount to discrimination.
While the implications of Brexit and possible appeal to the CJEU may have an impact, trustees of schemes which relied on the exemption should review the position taking into account that:
· Benefits payable are different for every scheme.
· Scheme rules may need amendment and the benefit basis adjusted accordingly.
· Past payments to same-sex partners, which have relied on the exemption, may require to be adjusted, so should be identified.
· There may be funding implications, which should be discussed with the scheme actuary.