Have you checked the “true colours” behind your rules?

In June, the rainbow flag symbolising LGBTQIA+ pride can be seen blowing in the summer breeze. The rainbow flag represents the diversity of the LGBTQIA+ community and the spectrum of human sexuality and gender.

Pension schemes are creations of the past; their governing rules were often written many years ago when society looked very different, and with assumptions as to what an average family looked like. A husband, who went to work, a woman who stayed at home to look after the children, and 2.4 children.

Equality of benefits

Pensions legislation developed over time to provide for equality of benefits, first with the case Barber in 1990 that provided the pensions must be equal for men and women from that date, then Walker v Innospec in 2017 setting out that pension provision for survivors must be equal between opposite and same sex spouses and civil partners. And more recently schemes have been grappling with equalising GMPs, following the Lloyds case in 2018.

So we’re all now clear on what we must do. But what about what we could do?

A typical DB pension scheme provides a member with an income for life on retirement, and benefits for a surviving spouse, children or dependants in the alternative. Why? So, that those who were financially dependent on the member continue to be provided for.

However, a lot of rules have stringent requirements around how to qualify for such benefits. They were often written a long time ago, based on, now out-dated, assumptions around the “average” family. This leaves trustees grappling with very difficult decisions. Potentially having to refuse benefits to a deceased member’s family because they don’t fit with rules and structures from the past.

Are your rules fit for purpose?

Is it right to refuse a benefit because modern families are not structured as they used to be? Is this fair to the LGBTQIA+ community in particular?

Taking children’s pensions, for example, are the rules structured in a way that would allow a pension to be paid to a child of a same sex couple regardless of their or their child’s formal legal status?

Let’s take an example.

Gerry and Clive

Gerry is a member of the Pink Pension Scheme. On Gerry’s death, a spouse’s pension is payable to a spouse or civil partner that was nominated to the Scheme when Gerry left pensionable service. A child’s pension is paid to any “child of marriage”.

Gerry left the scheme in 2003. He and Clive entered into a Civil Partnership in 2008. Gerry had a child (Josh) in 2015 with Maggie, who is asexual. Maggie is a friend of Gerry and Clive, and Gerry donated his sperm to Maggie. Gerry is actively involved in Josh’s life and provides financial support to Maggie, although Josh lives with Maggie. Gerry passes away.

The Trustees take legal advice. They decide that they cannot award a spouse’s pension to Clive because the nomination of the civil partnership wasn’t provided to them in 2003, even though it would not have been possible at the time for Gerry and Clive to be in a civil partnership. They do not award a child’s pension to Josh, as they consider that Josh was not a “child of marriage”.

The true colours of your rules

The Trustees’ decisions in the above case is legally correct and does not breach equality law. But does it feel right or fair?

Many pension scheme rules have quirks like this. The intention was to provide financial benefits to members’ families on the member’s death – but is that happening?

We’ve been working with some of our clients to cast a fresh eye over these rules from the past, to see if they are still fit for purpose now to provide the benefits to members and their families that were originally intended. And to make sure they work for a fully diverse spectrum of families.

So don’t be afraid to look at the “true colours” of your rules. We can help you interpret or amend those provisions to transform them into a rainbow.

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