Pension entitlements: changes to legislation do not fully undo the effects of the past

10 minute read
14 October 2015


The Court of Appeal has confirmed that legislation which is intended to protect employees under anti-discrimination legislation cannot be relied upon to extend such protection to a period of time before the date the legislation was introduced.

Importantly, in the context of pension schemes, this necessitates identifying whether the benefit can be said to have accrued and become fixed at the point the discriminatory act is complained of.

On the facts of the two joined cases before the Court, this means:

  • The restriction of a surviving civil partner's pension to the member's post 4 December 2005 pensionable service was not unlawful discrimination (5 December 2005 being the date the Civil Partnership Act 2004 came into force); and
  • Part time workers are unable to claim pension entitlement for service prior to 7 April 2000 (being the date Part-Time Workers Directive should have come into effect).

Evolving anti-discrimination legislation

A key concept of equality is that individuals should be judged according to their personal qualities and not subjected to detriment on the basis only of their status, group membership, or irrelevant physical characteristics. But, not every distinction is discriminatory. Anti-discrimination laws evolve over time to deal with particular manifestations of inequality society deems to be unacceptable at a particular point in history.

The courts have formulated principles for dealing with the evolutionary introduction of anti-discrimination legislation over time. One principle (the "no retroactivity" principle) is that EU legislation does not have retrospective effect unless there are exceptional reasons to do so (including that it is clear that the legislator intended such an effect).

A second key principle (the "future effects" principle) is that amending EU legislation applies, unless otherwise specifically provided, immediately to the future effects of a situation which arose under the law as it stood before amendment.

In the cases of O'Brien v Ministry of Justice and Walker v Innospec & ors, both of which considered alleged discrimination in the context of pension scheme rights, the Court of Appeal has recently considered the effect of these two principles.

It has decided that any less favourable treatment in relation to pension benefits can only be unlawful under EU law where entitlement to the benefit in question can be said to have accrued by the time the relevant anti-discrimination legislation had been introduced, or was required to have been introduced.

O'Brien v Ministry of Justice

Mr O'Brien QC was appointed as a part-time judge from 1 March 1978 until 31 March 2005. In 2000 the Part Time Workers Directive, which was introduced to ensure that part-time workers are not treated less favourably than comparable full-time workers, came into force. At a preliminary stage, the court agreed that part-time fee-paid judges are "workers". As such, it was contrary to the Part Time Workers Directive to exclude fee-paid judges from access to the occupational pension scheme for full-time judges. The court therefore needed to calculate the amount of the pension to which Mr O'Brien was entitled.

Was Mr O'Brien entitled to a pension based on all of his service from March 1978, or only from 7 April 2000, the date on which the Part Time Workers Directive should have been transposed into UK law? The Employment Tribunal said 1978, but on appeal the Employment Appeal Tribunal (EAT) said 2000.

Walker v Innospec & ors

Mr Walker worked for his employer, Innospec, from January 1980 until his retirement on 31 March 2003. He was a member of Innospec's pension scheme. The scheme rules provided: "If a Member dies on or after 1 December 1999 leaving a surviving spouse that spouse will receive a pension for life."

At the date of his retirement Mr Walker had been living with his male partner since September 1993. The sexual orientation discrimination aspects of the Equal Treatment Framework Directive came into force in the UK in December 2003. The Civil Partnership Act 2004 came into force on 5 December 2005. Mr Walker and his partner registered a civil partnership on 23 January 2006. They have since married.

Registered civil partners must be treated in the same way as spouses on the death of a member. However, there is a partial exception contained in the Equality Act 2010 under which the requirement to equalise survivor benefits only applies to pensionable service from 5 December 2005.

As Mr Walker retired in September 2003, were the trustees of the Innospec pension scheme required to pay a surviving spouse's pension to his husband in the event that his husband outlived him? The Employment Tribunal said yes, but on appeal the EAT said no.

Court of Appeal judgment

"No retroactivity" principle and "future effects" principle

The Court of Appeal quickly determined that both the Part Time Workers Directive and the Equal Treatment Framework Directive did not have retrospective effect, in keeping with the "no retroactivity" principle. So Mr O'Brien and Mr Walker could not seek to rely on the later introduction of the Part Time Workers Directive and the Framework Directive in respect of pension benefits which had arisen before the respective dates of implementation.

This left the question of when does a situation become 'permanently fixed' under the "future effects" principle? In other words, for a benefit such as a final salary pension, which gradually accrues over the course of a member's period of employment, at what point does the entitlement become fixed, such that an alleged disparity in treatment between a member on protected characteristics grounds can be said to be unlawful under EU law?

Both Mr O'Brien and Mr Walker sought to argue that the less favourable treatment occurred at the point the pension came into payment. This would have allowed them both to rely on the respective legislation which was enacted after the date of some (in Mr O'Brien's case) or all (in Mr Walker's case) of their pensionable service.

The Court of Appeal disagreed. It instead concluded that pension rights attributable to a particular period of service are acquired definitively during that period of service.

What this means for the claimants

Mr O'Brien was only entitled to a pension as a part-time worker based on his service from 7 April 2000, when the Part Time Workers Directive should have been transposed into English law. His service as a part-time worker before this date did not benefit from the protections of that Directive.

In Mr Walker's case, he had built up his pension gradually over his service with Innospec over a number of years and become a pensioner before the right to equal treatment on the ground of sexual orientation was introduced in December 2003. Since Mr Walker retired before that date, whatever entitlement to pension he had was definitively established before that date. His (same sex) spouse will not benefit from a survivor's pension based on his full period of pensionable service.

In addition, the Court also confirmed that the partial exception contained in the Equality Act 2010 under which the requirement to equalise survivor benefits only applies to pensionable service from 5 December 2005 is lawful and compliant with EU law.

As Lord Justice Underhill concludes in his ruling, "I can understand that Mr Walker and his husband will find this conclusion hard to accept. But changes in social attitudes, and the legislation that embodies those changes, cannot fully undo the effects of the past." This is particularly resonant, noting that if Mr Walker remarried, and this time to a woman, she would benefit from a survivor's pension, while his actual same sex spouse would not.

The Court of Appeal was confident enough in its findings in these cases that it declined to make a reference to the Court of Justice of the European Union for a further determination. However, it is believed that permission to appeal to the Supreme Court will be sought in both cases.

Wider implications

Rumours have been rife for some time that the approach previously applied by the Employment Tribunal in the earlier Innospec decision would lead to more decisions on discrimination law being applied with retrospective effect.

This decision knocks those rumours on the head, by confirming the application of the "no retroactivity" principle when changes are made to anti-discrimination provisions. This will quell fears that these and other areas of discrimination protection could be subject to backdating claims.

As regards same sex couples, this decision confirms that occupational pension schemes can continue to rely on the restriction in the Equality Act 2010 (paragraph 18 of Schedule 9) which limits surviving civil partners' benefits (in respect of a member's non contracted-out rights) to a member's post 4 December 2005 pensionable service. This is helpful clarity for employers and pension scheme trustees, both of whom are subject to duties under the Equality Act 2010.

Future developments

Employers and trustees should still watch out for further developments in this area. Although the proviso in the Equality Act 2010 has survived scrutiny by the Court of Appeal, the provision of survivor benefits to same sex civil partners and spouses is currently being reviewed by the Government to consider whether the law should be changed. No time-frame has been given for a decision, but the Court of Appeal's decision is likely to have bought the Government more time in considering its preferred approach.

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