The Marriage (Same-Sex Couples) Act 2013, key provisions of which are due to come into force on 13 March 2014, will allow same-sex couples the right to a civil marriage in England and Wales from 29 March 2014. Same-sex couples already have a right to register as civil partners under the Civil Partnership Act 2004. The Act does not remove the availability of civil partnerships going forwards but does allow those in a civil partnership to convert that relationship into a marriage. For the purposes of occupational and state pensions, same-sex couples will be treated in the same way as civil partners are currently.
Rights under occupational defined benefit (DB) pension schemes
On the death of a member of an occupational DB scheme after 29 March 2004:
- In relation to non-contracted-out benefits, the surviving same-sex spouse will be entitled to the same benefits as an opposite-sex surviving spouse for pensionable service from 5 December 2005
- In relation to contracted out benefits, benefits have to be provided in line with the rules for a widower; in other words, the same-sex spouse will be entitled to:
- 50% of the GMP accrued after 5 April 1988; and
- 50% of the reference scheme pension, in relation to service after 5 April 1997.
Any lump sum death benefits should be provided for a same-sex spouse in the same way as for the spouse of the opposite-sex.
The above benefits are the statutory minimum that need to be provided.
Do DB scheme rules need to be amended?
Providing the statutory minimum
The statutory minimum in relation to non-contracted out benefits is 'overriding'; schemes can therefore provide this benefit without formally amending their rules. The Act does not alter the effect of any "private legal instrument" (the term would include a scheme's trust deed and rules) made before 13 March 2014. Terms such as 'marriage', 'widows', 'widowers', 'husband' and 'wife' will be interpreted only in terms of marriage of opposite-sex couples. After 13 March 2014, however, a reference to such terms will be interpreted as including those in same-sex couple marriages (depending on the precise terminology of the document).
This means that the effect of any consolidation of rules of a scheme made on or after 13 March 2014, could be that same-sex spouses could become entitled to the same benefits as opposite-sex spouses. So, if this not the intention, i.e. schemes wish to provide only the statutory minimum for same-sex spouses, it will be important to ensure the rules are drafted accordingly.
Where schemes have contracted-out benefits, whether or not schemes have to amend those provisions will depend on how the contracting- out provisions are currently worded in the rules.
Providing more than the statutory minimum
If schemes wish to provide benefits that are more generous than the statutory minimum, they will need to amend their rules. Many schemes already provide for civil partners to be entitled to the same benefits as opposite-sex spouses for all pensionable service; such schemes are likely to wish to provide the same benefits for same-sex spouses as they do for civil partners (if they do not, this could result in anomalies, in particular if a civil partner converts their relationship into a civil marriage).
The extra cost to the employer of funding more generous benefits than the statutory minimum should be considered.
The statutory power for trustees to amend scheme rules
A Statutory Order introducing consequential amendments as a result of the coming into force of the Act, makes provision for trustees to be able to amend their rules by resolution to give effect to the requirements of the Act. However, where more than the statutory minimum benefits are to be provided for same-sex spouses, the consent of the participating employer(s) is required to the amendment.
Occupational DC schemes
Schemes should ensure that any death benefits are provided for same-sex spouses as required under the Act. The statutory minimum distinction between benefits pre-5 December 2005 and those after is only relevant to benefits that are calculated by reference to pensionable service. Where death benefits are not referable to pensionable service (i.e. if they are based on a multiple of final salary), these have to be provided in the same way as for opposite-sex spouses.
Pension sharing on divorce
Both DC and DB schemes should ensure that their pension sharing on divorce provisions apply to same-sex spouses in the same way as opposite-sex spouses.
Trustee discretions and dependants' pensions
Where there is any element of discretion given to trustees regarding whom to pay a death benefit to, trustees should ensure that their approach does not discriminate against same-sex couples.
Under some schemes, provisions relating to a child's or dependant's pensions depend on whether a spouse pension is payable. These provisions should be reviewed carefully to ensure that they are compliant with the requirements of the Act and that there are no differences in treatment between same-sex spouses and opposite-sex spouses, as far as their children and dependant's pensions are concerned.
Challenge to the legislation in relation to Civil Partners
The Equality Act 2010 contains a general non-discrimination rule. However (as referred to above), an exemption in the Act from this rule allows schemes to restrict a person who is not married (such as a civil partner) "from having access to a benefit, facility or service… the right to which accrued before 5 December 2005". ("the Civil Partners Exemption"). This means that schemes have to pay surviving civil partners benefits on the same terms as surviving spouses of the opposite-sex but only in respect of the deceased partners' pensionable service accrued from 5 December 2005 (although they can provide benefits in respect of all of the deceased's civil partner's pensionable service if they wish). Where couples have entered into a civil partnership a long time before 5 December 2005, the difference in benefits compared to if they had been in an opposite-sex marriage for the same period can be considerable. One such person was Mr Walker, a retired member of the chemical company Innospec's pension scheme.
Mr Walker challenged the Civil Partners Exemption in the Manchester Employment Tribunal. In the first instance, the Employment Tribunal found the exemption to be unlawfully discriminatory and in contravention of the EU Framework Directive which prohibits discrimination on various grounds, including a person's sexual orientation. For our briefing on that decision, click here.
However, on appeal, the Employment Appeal Tribunal recently overturned the Employment Tribunal's decision holding, broadly, that the exemption does not unlawfully discriminate on grounds of sexual orientation and is not in contravention of the Framework Directive. A decision of the Employment Appeal Tribunal is binding and, subject to a successful appeal by Mr Walker to the Court of Appeal, represents the current legal position as to the Civil Partners Exemption.
Government review to eliminate differences in treatment because of sexual orientation
Whether or not there is an appeal in the Walker v Innospec case, the Government is committed to reviewing the differences in survivor benefits for opposite-sex couples and same-sex couples in legal relationships in occupational pension schemes. The review is required under the Act. The Act, in particular, requires the Government to review the Civil Partners Exemption and to publish its findings in a report before 1 July 2014. Following publication of the report, the Secretary of State may adopt provisions to reduce or eliminate relevant differences in survivors' benefits in occupational pension schemes. The review could result in further changes in the law and schemes that do not provide full benefits for civil partners and same- sex spouses, may need to consider their provisions again.