Same sex marriage: the implications for your pension scheme
The Marriage (Same Sex Couples) Act 2013 enables same sex couples in England and Wales to marry. What effect will this have on pension schemes?
With effect from March this year, the Marriage (Same Sex Couples) Act 2013 enables same sex couples in England and Wales to marry. It is also possible for civil partners to convert their civil partnership into a marriage. On conversion, the civil partnership will end and the marriage will be treated as having existed since the date on which the civil partnership was formed.
If a pension scheme is governed by rules introduced on or after 13 March 2014, any reference to a spouse will be read as including a same sex spouse. However, if a scheme is governed by rules introduced before 13 March 2014 (and most are), any reference to a spouse will only be read with reference to the opposite sex.
Although broadly speaking the Act ensures that same sex married couples are entitled to have the same legal rights as opposite sex married couples, this does not extend fully to death benefits provided under occupational pension schemes.
Lump sum death benefits will generally be calculated in the same way as for opposite sex marriage survivors, as they are calculated with reference to multiples of salary rather than service. However, in respect of pension benefits, the legislation provides that same sex spouses are entitled to:
- Identical survivor’s benefits to opposite sex spouses - in relation to service accrued by members from 5 December 2005; and
- Identical contracted out survivor’s benefits (specifically Guaranteed Minimum Pension) - in relation to service accrued from 6 April 1988.
There is, however, an unresolved legal wrangle over whether the above limitations in time are unlawful.
Legal uncertainty: the current position
The validity of the above limits was questioned in Parliament as a potential breach of European discrimination law. To address that concern, the Act required the Government to review the different levels of death benefits provided by occupational pension schemes for opposite sex and same sex spouses. The review began in January 2014 and the report was published in June. Although no immediate change was proposed, the Government is considering the findings before making a decision on potential further changes to the law. Any changes are also likely to apply to the death benefit entitlement of civil partners as they are affected by similar uncertainty.
If they have not already done so, employers and trustees of occupational pension schemes need to decide what survivors’ benefits will be provided to same sex spouses. They also need to check that their scheme rules (when read together with the legislation) are consistent with the intended level of benefits.
For schemes governed by rules in force before 13 March 2014 which want to provide the legal minimum, no immediate rule amendment is required. However, future amendments are desirable to ensure that scheme rules reflect the actual benefits provided.
For schemes governed by rules in force before 13 March 2014 which want to treat same sex spouses equally with opposite sex spouses, it will be necessary either to amend the rules or to use the scheme’s augmentation power to deliver the higher level of benefits. Many schemes have already been amended to achieve simplicity and perceived fairness.
As always, great care should be taken over any rule amendments. That is particularly important in view of the awaited government decision. It is also important in view of the retrospective nature of any amendments intended to confirm the legislative minimum. Legislation provides a trustee resolution process to ensure that such amendments are exempt from restrictions on amendments to rights built up in respect of past service. Employers and trustees should seek advice to determine whether their schemes should be amended and if so how. Any schemes that do not implement amendments to achieve full equality for same sex spouses will need to monitor future developments in the law.
If you are considering making any changes to the pension benefits you offer your employees, or would like us to review the terms of your scheme, please contact Mark Poulston (email@example.com) or Dei Harries (firstname.lastname@example.org).