Pensions Update: Supreme Court rules on equal pension rights for same sex spouses

The Supreme Court has held that offering different survivors’ benefits to same-sex spouses than to different sex spouses is unlawful.

In a dramatic turn of events this month, the Supreme Court has held that offering different survivors’ benefits to same-sex spouses than to different sex spouses is unlawful (reversing the earlier findings of the Court of Appeal).

In the long-running case of Walker v Innospec Limited the Supreme Court ruled that restricting the calculation of pensions for surviving same sex spouses and civil partners to the period of the member’s service on or after 5 December 2005 (the date on which the Civil Partnership Act 2004 became law) discriminates on the basis of sexual orientation.

The Supreme Court held that the exemption in the Equality Act 2010 which permits this practice is incompatible with EU law on equal treatment and must be dis-applied. 

The Facts

The Claimant, Mr Walker worked for chemicals group Innospec for 23 years, from 1980 until his retirement in 2003. He started living with his male Partner in September 1993.

The Civil Partnership Act 2004 came into force on 5 December 2005 and Mr Walker and his partner entered into a civil partnership soon after, in early 2006. They later converted their civil partnership into a marriage.

Mr Walker sought to clarify the amount of survivor’s pension that his civil partner would receive in the event of his death. His employer’s pension scheme provided that a survivor’s pension for a civil partner should be calculated only on the basis of pensionable service after 5 December 2005.

As all of Mr Walker’s pensionable service fell before this date, his partner would have been entitled to a pension of approximately only £500 per year (a small sum based on Mr Walker’s ‘contracted out’ benefits) whereas a surviving female widow would be entitled to a pension of approximately £41,000 (two-third’s of Mr Walker’s own pension entitlement).

Mr Walker brought a claim to the Employment Tribunal, which upheld his complaint, ruling that Innospec and the pension scheme trustees had unlawfully discriminated against him on the basis of his sexual orientation.

A complex history: the case on appeal

However, the Employment Appeal Tribunal (EAT) later overturned this decision, stating that the pension benefits accrued by Mr Walker before the date that civil partnerships became lawful should be discounted for the purposes of calculating his partner’s entitlement. The EAT pointed to a specific exception in the Equality Act 2010 which states that civil partners must receive equal pension benefits but only in respect of this restricted period of time. The EAT observed that UK law was explicitly clear in allowing schemes not to equalise survivors’ benefits and any finding to the contrary would require UK Courts to ‘legislate rather than interpret’.

On further appeal by Mr Walker, the Court of Appeal agreed with the EAT and dismissed his claim. It held that the benefit Mr Walker was claiming was part of his pay earned incrementally during his period of service and that any pension rights attributable to a particular period of service are ‘fixed’ when that period of service expires. The law in force at that point in time will apply.

At that time, the discriminatory treatment complained of by Mr Walker was lawful. Civil partnerships and same sex marriages were not legally recognised and employers were therefore not required to ‘equalise’ benefits. The Court of Appeal held that, under the principle of ‘no retroactivity’, conduct that was lawful at the time it occurred cannot retrospectively become unlawful.

The Supreme Court: a landmark decision

Mr Walker one again appealed, this time to the Supreme Court. He argued that the Equality Act ‘exception’ was not compatible with the principle of ‘equal treatment’ enshrined in European law and should be dis-applied. He also argued that his former employer and the trustees of its pension scheme had breached the ‘non-discrimination’ rule which domestic legislation implies into all occupational pension schemes.

The Supreme Court upheld his claim, holding that Mr Walker’s husband was entitled to survivor benefits calculated on the basis of Mr Walker’s full period of service with Innospec.

It disagreed with the Court of Appeal’s finding that Mr Walker’s pension rights were ‘fixed’ at the date of his retirement. Instead it held that his pension rights would be ‘fixed’ at the date of his death when the survivors benefit provided under the scheme became payable. The law in force at that date, and not the date of Mr Walker’s retirement, should apply and Mr Walker’s husband should therefore receive a full survivor’s pension entitlement.

What does this mean for me?

The Supreme Court has finally resolved a long period of uncertainty on this issue. This decision ensures that all civil partners and married couples, whether they are of the same sex or opposite sex, have equal pension rights in the event of death. Thousands of couples will benefit.
 
The decision, of course, comes at an additional cost to many employers who now face the expense of ‘equalising’ benefits retrospectively. Many UK pension schemes have already voluntarily chosen to treat civil partnerships and same sex marriages in exactly the same way as opposite sex marriages. However, the trustees of any scheme which chose to rely on the Equality Act exemption to keep down costs will now need to review the scheme rules to make sure that there is no ongoing discrimination. Benefits already accrued under the scheme may need to be adjusted. Evidence heard by the Supreme Court suggested that the cost of applying the ruling retrospectively will be around £100m for private sector schemes.

The Equality Act exemption was reviewed by government in June 2014 when, against a background of already escalating pension liabilities, it did not make any recommendations to remove it.  Many will welcome the Supreme Court bringing the law up to date with social attitudes. In today’s equality-driven environment this pocket of persistent inequality had been something of an anomaly.

As this decision is based on EU equality law however, the next question is whether this new protection will survive the upheaval of Brexit. Human rights organisation Liberty, which represented Mr Walker in the Supreme Court, has sought a promise from the government that there will be no ‘roll back’ on pension equality when the UK leaves the EU.

The extent of the impact of this decision on your organisation’s scheme will depend on the provision it currently makes for surviving partners of either sex. We are happy to advise on the rules of your pension scheme, including those provisions in respect of survivor benefits, to ensure that they comply with legal requirements. Please do not hesitate to get in touch.

Mark Poulston is a Partner and Head of Pensions at Weightmans LLP (mark.poulston@weightmans.com).

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