Equality of survivor's pensions for same-sex partners confirmed

Equality of survivor's pensions for same-sex partners confirmed

The return of preferential creditor status for HMRC

The Supreme Court has recently ruled that survivor’s pensions, available under many occupational defined benefit pension schemes, should be available to same-sex surviving spouses and civil partners without limiting the pension to a scheme member’s service after 5 December 2005 (the day Civil Partnerships came into existence). 

The case of Walker v Innospec Limited and Others [2017] UKSC 47 concerned Mr Walker’s long legal battle with Innospec for confirmation that his husband (and previously civil partner) would receive a survivor’s pension (valued at the time at £45,700 per year) from the company’s pension scheme in the event he pre-deceased his husband. 

Under the scheme, like many occupational defined benefit pension schemes, a survivor’s pension was payable on the death of the member.  And similar to many other schemes, if a scheme member got married, either whilst a scheme member or at a later date, the member’s spouse would receive a pension of two thirds of the member’s pension. 

The Equality Act 2010 derives from an EU directive, which amongst others makes it unlawful for employers to discriminate on the grounds of sexual orientation.  However, Innospec had chosen to rely on an exemption to the Equality Act 2010.  Paragraph 18 of Schedule 9 of the Equality Act provides that it is lawful to prevent or restrict access to an occupational pension benefit (a) where the right to that benefit accrued before 5 December 2005 or (b) which is payable in respect of periods of service before that date.

Innospec argued that the survivor’s pension was referable to Mr Walker’s service, which was before December 2005.  As a result they argued the exemption applies and they would not be required to pay the survivor’s pension to Mr Walker’s male spouse. 

The Supreme Court considered the transposition of EU legislation into domestic law and the use of temporal limits – such as that introduced by the exemption, which allowed for unequal pension treatment if it related to service or benefit accrual before 5 December 2005. 

The Court explained the distinction drawn by the Court of Justice of the European Union between the retroactive application of legislation to past situations (which is prohibited unless expressly provided for) and its immediate application to continuing situations (which is generally permitted).  The Court equated non-discrimination rules applicable to pensions to a continuing situation, as the right to pension accumulates over time, and held that the entitlement to claim the survivor’s pension only arises at the point of the member’s death so unequal treatment in respect of historic service was contrary to EU law.

The Court held that insofar as the exemption in the Equality Act authorises a restriction of payment of survivor’s benefits based on periods of service before 5 December 2005, paragraph 18 of Schedule 9 of the Equality Act is incompatible with EU law and must be disapplied. 

In reaching its decision the Court focused on two points:

  1. If Mr Walker had decided to marry a woman (rather than a man) after his retirement, she would be entitled to a survivor’s pension after his death, regardless of the fact they were not married while he was an active contributing member of the Innospec pension scheme.  The point of unequal treatment therefore occurs at the time the pension falls to be paid, rather than the time the benefit was accruing. 
  2. No evidence had been provided to suggest that providing a survivor’s pension to same-sex spouses whilst limiting the pension to service after 5 December 2005 would produce “unacceptable economic or social consequences” for pension schemes.  Indeed with funded private sector schemes the cost of potentially providing a survivor’s pension to a member’s spouse would be built into the ongoing actuarial calculations of the value of a scheme’s liabilities, and would therefore have been built into the scheme’s contribution rates to ensure the scheme is adequately funded.

It is for this neutral cost reason that many trustees have not relied on the exemption in the Equality Act to restrict survivor’s pensions to a member’s post-5 December 2005 service.  However, to the extent that schemes have been relying on this exemption they will need to ensure future survivor’s pensions are not subject to such time limits on service and amend their scheme rules to clarify this.  They will also need to re-calculate all survivor’s pensions paid to civil partners or same-sex spouses without restriction to post-5 December 2005 service. 

If you require assistance please speak to your usual contact, or Gabrielle Holgate, Head of Pensions. 


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