This month the Supreme Court held that an exemption in the Equality Act 2010, allowing employers to exclude same-sex partners from spousal benefits paid into pension funds, is discriminatory and breaches equality laws.
Facts of the case
John Walker began working for Innospec Limited in 1980 and retired in 2003. Mr Walker and his now-husband have been together since 1993. They entered into a civil partnership in January 2006 and this was later converted into a marriage.
Mr Walker paid into the firm's contributory pension scheme throughout his time at Innospec, making the same contributions as married employees. Shortly after entering into the civil partnership, Mr Walker asked Innospec to confirm that his partner would be paid the pension in the event of his death.
Under UK law, pension plans are only required to provide full benefits to same sex partners in respect of service from 5 December 2005 onwards. The Civil Partnership Act 2004 provided that Mr Walker and his husband should have equality of pension rights going forward from 5 December 2005 (the date the Act came into force). However, it did not provide for equal rights for past pension rights which Mr Walker had earned with his employer, Innospec. This is reflected in the Equality Act 2010, which provides that an employer has to treat a civil partner in the same way as a spouse on the death of a scheme member, but only going forward from 5 December 2005.
Innospec refused to pay Mr Walker's husband the spouse's full pension as Mr Walker's service preceded 5 December 2005. This meant that on the death of Mr Walker, his husband would receive a pension of around £1,000, whereas if he received equal value for the pension rights he earned before 5 December 2005, he would receive a pension of around £45,000.
Following two appeal court decisions, the Supreme Court unanimously decided that Mr Walker's husband would be entitled to the same pension rights as would be payable by the scheme to a heterosexual married couple. Preventing Mr Walker's husband from receiving the same pension rights as an opposite-sex spouse was in breach of equality laws. In the event of Mr Walker's death his husband (provided they remained married) would be entitled to Mr Walker's pension regardless of the fact that Mr Walker's employment with Innospec entirely preceded 5 December 2005.
How will this affect your scheme?
This decision is certainly a win for equality, but it will introduce a need for many pension providers to take action to ensure that civil partners and same-sex spouses are treated equally to heterosexual spouses. This will undoubtedly be expensive: during the case, the Department for Work and Pensions, along with Innospec, argued that the costs involved in "requiring all pension schemes to equalise entitlements retrospectively" would be £100 million for private sector schemes and £20 million for public sector schemes.
Surviving spouses and civil partners who have previously been refused their deceased partner's pension could be entitled to retrospective payments, meaning that scheme liabilities may need to be re-calculated. This may cause some funding difficulties for certain schemes.
Some schemes may have already decided voluntarily to give same sex partners the same benefits as heterosexual married couples. These schemes should not have to take any action.
Get in touch
If you have an issue in relation to survivor pension benefits, please get in touch with a member of our team.