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15 August 2017

Watershed Supreme Court Ruling: Pensions for same sex partners

In a watershed decision the Supreme Court has ruled that all same sex civil partners or same sex spouses are entitled to the same pension on the death of their partner/spouse as heterosexual partners.

Even though the Equality Act 2010 (the “2010 Act”) prohibits discrimination on the basis of sexual orientation, many occupational pension schemes contain rules which restrict the spouse’s pension available to a surviving same-sex spouse or civil partner. This is because an exception in paragraph 18 of schedule 19 of the 2010 Act provides that the surviving partner in a same-sex couple is only entitled to (1) survivor’s benefits arising from pensionable service on or after 5 December 2005, the date on which the Civil Partnership Act 2004 came into force, and (2) contracted-out survivor’s benefits for pensionable service on or after 6 April 1988. The Supreme Court decision in Walker v Innospec Ltd [2017] has removed this exception.

Following the introduction of the Civil Partnership Act 2004, some occupational pension schemes immediately brought the spouse’s benefits available to same-sex couples into line with those already enjoyed by heterosexual couples. However, many trustees and employers took the view that it would be too expensive for them go beyond the then minimum required by the 2010 Act.

Innospec Limited was one such company. John Walker was employed by Innospec between 1980 and his retirement in 2003. He was a member of the Innospec Pension Scheme throughout this period. On 5 December 2005, Mr Walker applied to enter into a civil partnership with his long-term partner. He asked Innospec whether, in the event of his death, his civil partner would be entitled to a full spouse’s pension from his defined benefit occupational pension scheme. Innospec told Mr Walker that, as his service entirely predated 5 December 2005, his partner would only be entitled to a survivor’s pension on the basis of his contracted-out benefits, which would amount to a pension of £1,000 per year. If Mr Walker had been married to a woman in exactly the same circumstances, his wife would be entitled to a survivor’s pension of £45,700 per year. This discrepancy was permitted by the exception in the 2010 Act.

Mr Walker successfully made a claim for discrimination in the Employment Tribunal, arguing that the exception contained in the 2010 Act was contrary to EU legislation. After rulings in the Employment Appeal Tribunal and the Court of Appeal, Mr Walker’s case finally made its way to the Supreme Court, which unanimously found that paragraph 18 of Schedule 9 of the 2010 Act was incompatible with EU law and must be disapplied. As a consequence, Mr Walker’s partner (now his husband) is entitled to a full spouse’s pension, provided they remain married.

In reaching this judgment, the Supreme Court drew a distinction between the decisions of the European Court of Justice in EU case law including Barber and Coloroll, which imposed a temporal limit on the application of the decision (i.e. the decisions only affect benefits accrued after the date of the decision) and the failure of the UK government to properly implement EU legislation which should not have a temporal limit (i.e. the decision affects benefits accrued before and after the date of the decision). Similarly, the Court held that the question of whether a scheme was discriminatory would arise at the point at which the survivors’ pension became payable, rather than as the benefits were accruing. As such, unless there was evidence of “unacceptable economic or social consequences” of paying Mr Walker’s husband a full pension, it should be done. The court did not discuss the economic consequences of disapplying the December 2005 exemption.

Actions for Trustees

This decision has implications for both civil partnerships and same sex marriages. Rules that contain restrictions on benefits for civil partners and same sex spouses do not comply with UK law. This means that they should be amended in due course but in the short term, Trustees should ensure they comply with decision of the Supreme Court. This means not only the payment of future benefits but also reviewing whether the correct benefits have been paid in the past. The decision may also have an impact on scheme funding, depending on what assumptions the scheme actuary has made for the provision of such benefit. Trustees should consider asking their scheme actuary for comment on the possible cost implications.