Pensions Briefing - Pensions benefits for civil partners and same-sex couples

April 2013

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Introduction

In the recent case of Walker v Innospec (Walker), an employment tribunal held that a pension scheme which did not provide the same benefits to members’ civil partners as to spouses was discriminatory. This is in spite of a clear exemption in the Equality Act 2010, which allows pension schemes not to provide the same pension rights to civil partners for pre-2005 pensionable service. The Marriage (Same Sex Couples) Bill, which is currently proceeding through Parliament, would offer the same exemption for same-sex married couples. The decision in Walker is, however, subject to appeal and is not currently binding.

Background

The Equal Treatment Directive (2000/78/EC) (the Directive) prohibits discrimination on the grounds of sexual orientation. This has been sought to be implemented in the UK by the Equality Act 2010. Section 61(1) provides that ‘an occupational pension scheme must be taken to include a non-discrimination rule’. However, paragraph 18(1) of Schedule 9 contains an exemption that a scheme can restrict ‘a person who is not married from having access to a benefit, facility or service … the right to which accrued before 5 December 2005 (the day on which section 1 of the Civil Partnership Act 2004 came into force)’. In terms of pensionable service completed before 5 December 2005, civil partners are only entitled to contracted-out spouse benefits which accrued after 1988.

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Walker v Innospec

Mr Walker worked for Innospec (the Company) between 1980 and 2003, and was a member of the Innospec pension scheme (the Scheme), a defined benefit arrangement. He retired in 2003 on an annual pension of around £85,000 in today’s terms. He applied for a civil partnership with his long term partner on 5 December 2005, the day the Civil Partnership Act came into force. Their civil partnership was registered on 23 January 2006.

The Scheme provided a member’s surviving spouse with an annual pension of two thirds of the member’s pension. After the Civil Partnership Act came into force, the rules of the Scheme were amended ‘to the extent necessary to comply with legislative requirements relating to benefits payable to surviving civil partners’.

Mr Walker wrote to the trustees of the Scheme, asking them to confirm that his partner would be entitled to a spouse’s pension. The trustees of the Scheme stated that civil partners would be treated in the same way as married couples for any pensionable service since 5 December 2005: the minimum requirement under the Schedule 9 exemption. As all Mr Walker’s pensionable service was before 2005, his civil partner would be entitled to an annual pension of around £500, half the guaranteed minimum pension, which was the only benefit payable in respect of pre-2005 pensionable service. If Mr Walker had been married to a woman the same age as his civil partner, she would have been entitled to an annual pension of around £41,000. Mr Walker brought the case to the employment tribunal, and was supported in his claim by Liberty, the civil rights organisation. Following European case law, the tribunal found that the Scheme had directly and indirectly discriminated against Mr Walker on the grounds of his sexual orientation, as civil partners were in a comparable situation to married couples in the UK.

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Direct Discrimination

Under Article 2 of the Directive, direct discrimination occurs when ‘one person is treated less favourably than another is, has been or would be treated in a comparable situation, on any of the grounds referred to in Article 1’ (including sexual orientation).

The facts in Maruko v Versorgungsanstalt der deutschen Bühnen (Maruko) were similar to those in Walker, but concerned pension rights for German ‘life partners’, the equivalent of UK civil partners. The European Court of Justice (ECJ) decided that, as life partners were in a ‘comparable situation’ to German spouses for the purposes of Article 2, it was direct discrimination to treat them differently from spouses. This decision was confirmed in Jurgen Romer v Freie und Hansestadt Hamburg (Romer), on facts similar to Maruko. Following these cases, the tribunal in Walker was satisfied that there had been direct discrimination against Mr Walker.  

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Indirect Discrimination

Under Article 2 of the Directive, indirect discrimination occurs where ‘an apparently neutral provision … would put persons having a particular … sexual orientation at a particular disadvantage compared with other persons’ unless that provision is justified and proportionate. As the tribunal had found there was direct discrimination, it did not need to consider indirect discrimination but chose to do so anyway.

The Company accepted that there had been indirect discrimination against Mr Walker, but argued that this treatment was justified and proportionate. The Company calculated that the cost of providing a spouse’s pension to Mr Walker’s partner would be in the region of £47,000 annually, and would cost at least £400,000 in total. The tribunal did not accept these financial arguments, stating that the cost of providing a spouse’s pension would depend on whether the partner survived Mr Walker and if so, for how many years. The Company’s submissions were considered to be too generic to carry much weight. The tribunal also said that providing a spouse’s pension to Mr Walker’s partner ‘would be no greater burden than if the claimant were to dissolve his civil partnership and enter into a marriage with a woman of the same age as his present partner’. The tribunal therefore concluded that there had also been unlawful indirect discrimination.

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The Equality Act exemption

The tribunal decided that the Schedule 9 exemption was incompatible with the Directive. However, in Maruko and Romer, the employers were ‘emanations of the state’, and were therefore bound directly by the Directive. As a private sector employer, the Company was not bound directly. The tribunal concluded that it was not necessary to rely on the direct effect of the Directive. Instead, it could use its powers of interpretation under the Marleasing principle, which states that domestic courts should interpret national legislation so that, as far as possible, it is compatible with EU legislation. The tribunal interpreted the Schedule 9 exemption so that a scheme could restrict ‘a person who is not married or in a civil partnership from having access to a benefit, facility or service … the right to which accrued before 5 December 2005’. With this addition, the Company was unable to rely on the Schedule 9 exemption, so that on Mr Walker’s death, his civil partner should be entitled to a fully retrospective spouse’s pension.

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The Marriage (Same Sex Couples) Bill

This Bill is proceeding through Parliament. In its current form, it will give a surviving spouse in a same-sex marriage the same pension rights as a surviving civil partner, not the same rights as an opposite-sex surviving spouse (Schedule 4 Part 6). It will therefore replicate the position under the Equality Act exemption for civil partners.

The Government has justified this position in its paper ‘Equal Marriage – the Government’s Response’, published in December 2012. It states that granting fully retrospective spouses’ pensions to same-sex married couples ‘would entail an unforeseen retrospective cost to schemes in a challenging economic climate when schemes are already under significant pressure’.

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Comment

It is arguable that the tribunal in Walker over-stepped its powers of interpretation under UK law, based on the clear exemption in Schedule 9 of the Equality Act. Nevertheless, the tribunal’s decision is supported by elements of ECJ case law, following Maruko and Romer, and the UK Government was sufficiently concerned about the validity of non-retrospective spouses’ pensions for civil partners to make submissions to the ECJ in Maruko. It is possible that this case will be appealed beyond the Employment Appeal Tribunal, and so it may be some time before the law on this issue is certain.

The Department for Work and Pensions estimates that one third of defined benefit schemes have incorporated the Equality Act exemption into their rules, and so pay benefits to civil partners only for post-2005 pensionable service. These schemes, especially ones with significant numbers of civil partners, may wish to ask their actuary to estimate the potential costs impact of a change in the law. Otherwise, schemes should await the outcome of the appeal before taking any action.

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