On 12 July 2017, the Supreme Court handed down its judgment in the case of Walker v Innospec Limited.
In a landmark ruling, it overturned the Court of Appeal’s 2015 judgment, and unanimously agreed that Mr Walker’s husband should be entitled to a full survivor’s pension.
The UK was required to transpose the Framework Directive (which established a general framework for combating discrimination on a number of grounds, including sexual orientation), by 2 December 2003.
Since 5 December 2005, it has been possible for same-sex couples to enter into “civil partnerships”. The first marriages for same-sex couples took place on 29 March 2014.
Due to an exemption in the Equality Act 2010 (“EA10”), occupational pension schemes are not required to provide the same survivors’ benefits to civil partners / same-sex spouses as they would to opposite sex spouses. Civil partners / same-sex spouses are only entitled to:
Mr Walker joined the Innospec Pension Scheme (“the Scheme”) on 2 January 1980 and was a member until his retirement in 2003. He and his partner had been together since September 1993 and registered a civil partnership on 23 January 2006; they have since married.
On 1 August 2006, the Scheme was amended to take account of civil partnerships, to the extent required by law. On the death of a pensioner, the Scheme provides for a 2/3rds spouse’s pension. However, as permitted by statute, for civil partners this benefit is only paid in respect of service on or after 5 December 2005.
Mr Walker calculated that, in the event of his death, his partner would be entitled to around £1,000 per annum. However, if he was married to a woman of the same age as his partner, on his death she would be entitled to a pension of approximately £45,700 per annum.
Mr Walker brought a claim against his employer and the trustees of the Scheme for unlawful discrimination on the grounds of sexual orientation. (The claim related to the non-contracted-out benefits only.)
The Employment Tribunal found in Mr Walker’s favour in 2012 but its decision was overturned by the EAT in 2014. The Court of Appeal upheld the EAT decision in 2015, broadly on the basis that Mr Walker was not entitled to claim pension rights retrospectively as a result of changes in EU law.
The Supreme Court unanimously allowed Mr Walker’s appeal.
As a general rule, legislative changes apply prospectively, unless explicitly stated. However, the CJEU distinguishes between retroactive application of legislation to past situations (which is prohibited unless expressly provided for) and its immediate application to continuing situations (which is generally permitted).
Applying these principles to an occupational pension is challenging as the legal environment against which a pension accrues may be different to that against which the benefit becomes payable. “It is not immediately easy to identify the point at which entitlement to a pension becomes “permanently fixed”.
Lord Kerr decided that the “point of unequal treatment occurs at the time that the pension falls to be paid”; the period during which Mr Walker acquired the entitlement “had nothing whatever to do with its fulfilment”. This meant that entitlement was not, as the Court of Appeal had concluded, “permanently fixed” as it accrued. “If Mr Walker married a woman long after his retirement, she would be entitled to a spouse’s pension, notwithstanding the fact that they were not married during the time that he was paying contributions to his pension fund” and “the financing of [the Innospec Scheme] should have been planned taking into account a possible change in Mr Walker’s marital status”.
In any event, the court was satisfied that the decisions of Maruko and Römer v Freie und Hansestadt Hamburg make it clear that unless “evidence establishes that there would be unacceptable economic or social consequences of giving effect to Mr Walker’s entitlement to a survivor’s pension for his husband, at the time that this pension would fall due, there is no reason that he should be subjected to unequal treatment as to the payment of that pension”. They also make clear that, although Mr Walker’s entitlement to a spouse’s pension did not arise until after the Framework Directive had to be transposed, he is entitled to a pension calculated on the basis of all his pensionable service, including that before the transposition.
The Supreme Court declared the EA10 exemption incompatible with the Framework Directive in so far as it allows payment to be restricted to benefits based on periods of service from 5 December 2005, and that it must therefore be disapplied.
As a result, Mr Walker’s husband, (assuming they remain married at the time of Mr Walker’s death), is entitled to a spouse’s pension (in excess of the contracted-out pension) calculated on the basis of all Mr Walker’s years of service with Innospec (ie including those years which precede the date of the transposition of EU law into UK legislation).
This judgment is a victory for equality. It has always been difficult and, at times, uncomfortable for trustees to justify providing reduced levels of survivor’s pensions for registered civil partners and same-sex married couples, when compared to married couples. That anomaly has now been removed.
For those trustees and employers who already provide the same death benefits, the outcome of the case will vindicate their earlier decision to do so.
For those who took advantage of the EA10 exemption, they should now amend their scheme rules and revisit any current survivor’s pensions in payment. Trustees of DB schemes should also consult their actuary to ascertain what, if any, impact a move to providing full death benefits to civil partners/same-sex spouses will have on scheme funding. Depending on the proportion of members the actuary is assuming to be “married” for valuation purposes, in practice the case may not make a huge difference.
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