Survivors’ Benefits and Same Sex Partners

Introduction

With the Marriage (Same Sex Couples) Bill currently before Parliament and an ET decision1 at the end of last year deciding it is unlawful for pension schemes to provide anything other than a full survivor’s pension to civil partners, the question of what pension benefits schemes need to provide to same sex partners has been thrown open to debate.

In this Alert:

• Key points
• Background
• Is the provision of unequal benefits unlawful discrimination?
• What should schemes do?
• Will changes be required in the future?

Key points

• The Equality Act 20102 permits pension schemes to restrict the survivors’ benefits payable to civil partners.
• As currently drafted, the Marriage (Same Sex Couples) Bill will not require pension schemes to provide same sex spouses with the same survivors’ benefits as heterosexual spouses.
• Schemes are not required to make changes to their survivors’ benefits yet, but would do well to review their current practice and be prepared to field enquiries and potential claims.

Background

Since 5 December 2005, it has been possible for same sex couples to enter into “civil partnerships”. A civil partnership provides same sex couples with similar rights to those of a heterosexual married couple.

However, pension schemes are not currently required to provide the same benefits to civil partners as they would to spouses under UK law. Civil partners are only entitled to the following survivors’ benefits:

• contracted-out survivors’ benefits relating to service on or after 6 April 1988 (the date on which contracted-out benefits for widowers were introduced); and
• all survivors’ benefits relating to service on or after 5 December 2005.

Is the provision of unequal benefits unlawful discrimination?

UK

The Equality Act 20103 requires every occupational pension scheme to have a “non-discrimination rule” read into it. This rule prohibits “a responsible person” (broadly, the trustees, managers or any participating employer) from discriminating against, harassing or victimising a member or prospective member of the scheme on the grounds of any “protected characteristic”. Sexual orientation is a protected characteristic.

In Walker v Innospec, the Manchester ET concluded that the pension scheme had breached the non-discrimination rule by treating Mr Walker and his civil partner less favourably than a married person in the same situation, because of their sexual orientation. Further, the ET considered the exemption permitting the provision of different pension benefits to civil partners to be incompatible with the EU Equal Treatment Directive.4

We understand this decision is being appealed.

EU

Despite the position under UK law, the ET decision is not a complete surprise. There is already EU case law which indicates that civil partners should be provided with full survivors’ benefits.

In April 2008,5 for example, the ECJ concluded that a German pension scheme’s failure to provide a survivor’s pension to a civil partner was discrimination on the grounds of sexual orientation. In addition, it saw no reason why a same sex partner should not receive the full pension a spouse would have received, rather than only the pension accrued since the date same sex partners became protected under German law.

At the time there was concern that this might prompt a change in our law6 but, so far, none has materialised.

What should schemes do?

In our view, schemes need not rush to make changes, but should be aware that the views expressed by the ET in Walker v Innospec are unlikely to go away.

It would be useful at this stage for trustees and employers to:

• consider their current practice in relation to civil partners. Are they provided with the same benefits as spouses already? And, if not under the rules, maybe on a discretionary basis?;
• if benefits are currently restricted, consider what changes would be needed to give civil partners the same benefits as spouses, and the costs of these; and
• be prepared to answer questions from members and / or deal with potential claims.

In particular:

• DB schemes should consult their actuary to ascertain what, if any, impact a move to providing full benefits to same sex partners is likely to have on scheme funding. In practice it may not make a huge difference for some schemes, depending on the proportion of members the actuary is assuming to be “married” for valuation purposes. Also, schemes contracted-out on a reference scheme test basis are likely to provide full survivors’ benefits for service from April 1997 onwards already because of the practical difficulty in splitting out contracted-out benefits.
• DC schemes are probably less likely to provide different benefits for same sex partners, as members will generally have a free rein to decide the shape of their retirement benefits. But, if there are differences in the benefits provided, schemes should consider their rationale for continuing this.

Will changes be required in the future?

There is no indication that the Government intends to change its policy in this area. In its opinion,7 requiring the provision of equal benefits to same sex spouses would “entail an unforeseen retrospective cost to schemes in a challenging economic climate”.

However, in the face of the ET decision and challenges to the Government’s proposals on benefits for same sex spouses from Liberty (the human rights organisation), it may struggle to maintain this position.

We will, of course, monitor the situation closely.

1 Walker v Innospec (ET 13 November 2012 – Case No. 2411316/2011)
2 Section 18 of Schedule 9 to the Equality Act 2010
3 See our Newsletter: “A new age of equality” (June 2010)
4 Directive 2000/78
5 Tadao Maruko v Versorgungsanstalt der deutschen Bühnen (C-267/06)
6 See our Employment Unit Focus
7 Equal Marriage: The Government’s Response (December 2012)