Richard Lee
Partner
Head of Combined HR Solutions
Article
The Supreme Court has handed down an important decision relating to the provision of survivors' pension benefits for same-sex civil partners and spouses (Walker v Innospec and others (Walker)). The decision finds that an exemption in the Equality Act 2010 is invalid in so far as it contravenes EU anti-discrimination legislation. In addition, the Supreme Court has referred a question relating to part-time workers' pension rights to the Court of Justice of the European Union (CJEU).
Our pension experts review the rulings and explain what employers, trustees and HR professionals need to do to make sure that their pension schemes provide the correct survivors' benefits for same-sex civil partners and spouses.
The same-sex exemption under the Equality Act 2010 must be disapplied
The Supreme Court in Walker has declared that a provision of the Equality Act 2010 is incompatible with EU equal rights legislation and must be disapplied.
Pension schemes must provide equal survivors' benefits
Following the decision in Walker, it is now clear that pension schemes must provide same-sex survivors' benefits on the same basis as those provided for survivors of other married members.
Pension schemes relying on the exemption need to review their policies
Trustees of pensions schemes that have relied on the exemption should:
What has the Supreme Court said about part-time workers?
The Supreme Court has also handed down a judgment on a case focusing on pension rights for part-time workers (O'Brien v Ministry of Justice (O'Brien)). In this case, the Supreme Court decided to refer a specific question to the CJEU. As a result, there will be a delay before we receive any further clarification on points relating to pension benefits for part-time workers.
Mr Walker was an active member of his employer's final salary occupational pension scheme. He built up benefits from the beginning of his employment in January 1980 until his early retirement at the end of March 2003.
Mr Walker is gay and entered into a civil partnership on 23 January 2006 after the law was changed on 5 December 2005 to permit same-sex civil partnerships. Mr Walker and his partner subsequently married once the law was changed to permit same-sex marriage.
Under the rules of the pension scheme, if Mr Walker died before his husband, his husband would be entitled to a pension of roughly £1,000 per annum. By contrast, if Mr Walker had married a woman, she would have been entitled to a spouse's pension of about £45,700 per annum.
A general non-discrimination rule is implied into the rules of all UK occupational pension schemes. The Equality Act 2010 makes it illegal to discriminate on the grounds of an individual's civil partnership status. There is, however, an express exception applicable to pension schemes which makes it lawful to discriminate in respect of benefits accrued before the law introducing same-sex civil partnerships was introduced (i.e. before 5 December 2005).
Mr Walker brought a case against his employer in 2011. Mr Walker argued that the pension scheme's practice amounted to unequal treatment and that the same-sex exemption was at odds with the EU's anti-discrimination legislation. His case has since been heard by the Employment Tribunal, the Employment Appeal Tribunal, the Court of Appeal and, finally, the Supreme Court. The Supreme Court has now handed down its judgment.
In Walker, the Supreme Court made clear that the exemption making it lawful to limit same-sex survivors' benefits to those attributable to accrual on and after 5 December 2005 is incompatible with the EU's directive on equal treatment in employment and occupation (the Framework Directive). The exemption in the Equality Act 2010 should therefore be disapplied.
Disapplying the exemption means that pension schemes should provide same-sex survivors' benefits based on a member's entire period of service.
Pension schemes that have relied on the exemption in the Equality Act 2010 (as numerous schemes have to date) should consider what changes they will have to make to ensure that their policy on payment of survivors' benefits to same-sex civil partners and spouses aligns with the treatment of other married members.
As a practical step, trustees of pension schemes that have relied on the exemption should work with the scheme's administrators to check whether they have any pensions in payment that will be affected. If this is the case, they may need to take further advice on correcting any such payments.
In practice, many pension schemes had already decided to provide equal benefits. The impact on pension schemes as a whole will be limited as actuarial assumptions generally provide that a certain percentage of members will be married and do not distinguish between same sex and opposite sex marriages.
However, there could be a cost consequence to having to apply equal treatment retrospectively. The Department for Work and Pensions has estimated that this could amount to an additional £100 million of liabilities in respect of private sector schemes and £20 million for public sector schemes.
Pension schemes that have relied on the exemption in the Equality Act 2010 should:
At the same time that the Supreme Court handed down its decision in Walker, it also issued a judgment in O'Brien. O'Brien is focused on pension rights for part-time workers.
The case was viewed by the Court of Appeal as being so similar to Walker that the two cases were joined. The Supreme Court has not taken the same approach. Whilst it issued a final decision in Walker, in O'Brien it has, instead, referred a specific question to the CJEU.
The CJEU has been asked whether a part-time worker's pension rights should be calculated based on:
The facts in O'Brien will make the ultimate decision less relevant to other pension schemes. This is because it concerns a non-contributory public sector pension scheme where pension benefits are calculated solely by reference to service with the employer (rather than, for example, service whilst a contributing active member, as would be more typical in most other pension schemes).
It could, however, establish broader principles which will apply more widely to discrimination legislation and pension rights.
The Walker decision provides ongoing evidence of the continued ground-breaking developments in discrimination law. The full impact of both decisions will take time to be fully realised and costed for, with the implications likely to reach more widely into other discrimination cases.
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