The entitlement of same-sex couples to pension benefits has been the subject of commentary since 2005 in anticipation of the introduction of civil partnerships from 5 December 2005. This continues to be the case since the Marriage (Same Sex Couples) Act 2013 (the 2013 Act) came into force on 13 March 2014. The overarching purpose of the 2013 Act is to afford same-sex couples the legal right to marry and receive the same rights as opposite-sex married couples. However, the limitations applied to survivors’ benefits under occupational pension schemes raises questions around whether the 2013 Act achieves this purpose.
Survivors’ benefits under the 2013 Act
The EC Equal Treatment Directive was implemented into UK law by means of the Equality Act 2010 (the Equality Act). The Equality Act implies a “non-discrimination” rule into every occupational pension scheme prohibiting trustees and managers from discriminating on the basis of sexual orientation (among other protected characteristics).
Notwithstanding the protections to be afforded by the Equality Act, an exception was included that permits survivors’ benefits under pension schemes to be restricted to pension accrued after the introduction of civil partnerships.
The same restriction has been adopted in the 2013 Act in respect of same-sex married couples. As a result, the 2013 Act only entitles same-sex married couples to survivors’ benefits based on:
- the deceased spouse’s contracted-out pension rights accrued from 6 April 1988 (the date when survivors’ benefits were equalised for widowers); and
- the deceased spouse’s pension rights accrued from 5 December 2005 (the date the Civil Partnership Act 2004 came into force).
It should be noted that the above will only impact survivors’ benefits calculated by reference to pensionable service. Survivors’ benefits calculated by reference to pensionable salary only (these often arise in cases of death in active service in the form of a multiple of pensionable pay at the date of death) will be payable to same-sex married couples in the same way as for opposite-sex married couples.
In addition, pension scheme trustees and employers can choose to provide benefits in excess of the statutory minimum by fully backdating the change to include all of the deceased partner’s pensionable service.
Interaction of the 2013 Act with scheme rules
The 2013 Act includes provisions relating to the interpretation of legislation and other documents. For example, it expressly provides that references to:
- “marriage”, under existing England and Wales legislation, are to be read as including a same-sex married couple; and
- references to a “husband” or “wife” under new legislation are to read as including a man married to another man and a woman married to another woman, with “widow” and “widower” being similarly interpreted.
There is, however, a specific carve out in relation to “private legal instruments” in existence as at 13 March 2014 where these interpretation provisions will not automatically apply. It is understood that the intention of the Government was for pension scheme documents to be caught by this carve out so that same-sex spouses would not automatically be entitled to exactly the same pension benefits as opposite- sex spouses. However, the relevant legislation does not expressly refer to pension scheme documents and therefore there is a risk (albeit, in our view, a small risk) that references to widows and widowers under scheme rules may automatically include same-sex married couples where they do not expressly apply to opposite- sex couples only. This could have unintended consequences for schemes, particularly those that wish to maintain the statutory minimum position under the 2013 Act by limiting same-sex spouses’ benefits to service accrued from 5 December 2005.
It is likely that amendments will be required to scheme rules to reflect any decisions made by the trustees and employers of a scheme and, in particular, to effect the changes in relation to contracted-out survivors’ benefits as these are not overriding.
However, trustees and employers should be mindful that any changes to scheme rules from 13 March 2014 will not fall within the “private legal instruments” exemption and will be subject to the interpretation provisions.
Regulations recently enacted allow for trustees of schemes to modify the rules relating to survivors’ benefits to incorporate the requirements of the 2013 Act by means of a statutory resolution. If the trustees of a scheme wish to modify the rules to incorporate survivors’ benefits in excess of the minimum position provided for in the 2013 Act, the consent of the employer will be required.
In Walker v Innospec (reported in our June 2013 newsletter), the Employment Tribunal found that:
- it was discriminatory to refuse to provide a full spouse’s pension to a member’s civil partner; and
- the exemption allowing pension schemes to provide civil partners with survivors’ benefits only in respect of pension accrued from 5 December 2005 was in breach of the EC Equal Treatment Directive.
This decision was subsequently overturned in the Employment Appeals Tribunal (the EAT) which decided that the EC Equal Treatment Directive did not require schemes to provide survivors’ benefits in respect of pensionable service accrued prior to the introduction of civil partnerships.
Regardless of the EAT’s decision, the 2013 Act incorporates a requirement for the Secretary of State to carry out a review of the differences in survivors’ benefits under occupational pension schemes and the reliance on the exemption under the Equality Act. There is therefore a risk that, to the extent trustees and employers have provided spouses’ benefits to same-sex couples in line with the statutory minimum, this decision may need to be revisited to eliminate or reduce the differences in survivors’ benefits.
A report on the outcome of the review is due to be published before 1 July 2014.
What to do next?
- Employers and trustees who have not already done so should check the benefits currently provided under their rules and ensure that they reflect the survivors’ benefits they wish to provide.
- Schemes should monitor the review being undertaken by the Secretary of State because, to the extent that survivors’ benefits are being provided in line with the statutory minimum, trustees and employers may find themselves having to revisit their decision and make further changes to their scheme rules.
- Schemes should also review and amend member literature including scheme booklets, nomination forms and expression of wish forms to ensure that they reflect the benefits that are payable in respect of same-sex married couples.