Trustees and employers of pension schemes will need to take steps to ensure compliance following a recent judgment.
A recent Supreme Court decision has paved the way for equality of pension provision confirming that a surviving same sex partner is entitled to the same spouse's pension rights as a surviving opposite sex spouse.
In a move which has surprised many, the Supreme Court handed down its judgment in Walker v Innospec Limited and others on 12 July 2017 confirming that a surviving same sex partner should be entitled to the same spouse's pension rights as a surviving opposite sex spouse.
This decision means that trustees and employers of defined benefit schemes may no longer be able to rely on the statutory exemption that permitted certain pensionable service before 5 December 2005 to be disregarded. Instead civil partners and same sex spouses should receive benefits based on a member’s full period of pensionable service which could lead to increased Scheme liabilities.
Trustees and employers should look again at their scheme rules to determine how benefits for same sex couples should be administered, including pensions in payment and those that have yet to commence payment. In particular, legal advice should be sought where buy ins and buy outs are in place or being contemplated to make sure that spouse's benefits are secured on the correct basis.
Mr Walker had been employed by Innospec for 23 years prior to taking early retirement in 2003, contributing to the pension scheme throughout that time. He has lived with his now husband since 1993. They entered into a civil partnership in 2006 and subsequently married. Mr Walker brought an action that his (then) civil partner should be entitled to the spouse's pension provided for under the scheme. The Court of Appeal had originally confirmed that, broadly, there was no requirement to provide benefits for his partner in respect of pensionable service prior to 5 December 2005 (the date on which civil partnerships were introduced).
Much of the Supreme Court's discussion concerned the timing of legislative changes, especially in a pensions context where it is not always easy to see when benefits become permanently fixed. In the case in question it was argued that the entitlement to a spouse's pension is not fixed at the date of retirement but at the date when that spouse's pension falls due. Denial of a pension to a same sex partner at this point would amount to discrimination on the grounds of sexual orientation. If Mr Walker had married a woman (whether during his pensionable service, after retirement, or at some future date), there was no question that she would have been entitled to a spouse's pension.
The Supreme Court confirmed that Mr Walker’s husband, provided he does not predecease him, and that they remain married at the time of Mr Walker’s death, is entitled to a spouse’s pension calculated on the basis of all the years of Mr Walker’s service with Innospec.
For schemes, this means that their funding requirements should take into account the possibility of a change in marital status of an employee, regardless of whether it is a same-sex marriage or opposite-sex marriage. This could lead to an increase in scheme liabilities.
Summary and Actions
Unless there is an appeal to the Court of Justice of the European Union, which seems unlikely, all schemes will need to ensure that same sex couples are provided with the same benefits for all periods of pensionable service as married couples of the opposite sex. At this time it is uncertain if and when any specific amendment to the Equality Act 2010 will be made.
For trustees and employers this means:
- Reviewing scheme rules to consider how benefits for same sex couples should be administered for both those in payment and those yet to come into payment. Any underpayment of pension should be addressed (potentially with interest for late payment).
- Reviewing scheme rules to see if any specific rule amendments are required to bring them into compliance with the judgment.
- Where buy-ins and buy outs are in place or being contemplated, reviewing / revising the benefit specifications and contractual terms to provide same sex spouses with the same benefits as opposite sex spouses..