The current position
Under UK legislation, where a scheme member dies leaving a civil partner or same sex spouse, the pension paid to the survivor in excess of contracted-out rights need only be paid by reference to the member's pensionable service from 5 December 2005 instead of by reference to the member's full pensionable service.
This is an exception to the equality requirements under the Equality Act 2010 (the Equality Act) relating to sexual orientation. The Equality Act expressly excludes periods of service before 5 December 2005 in the calculation of pension for civil partners and the same restriction was applied to surviving same sex spouses in March 2014 when same sex marriages became legal. (Note that this exclusion does not apply to salary-related contracted out rights – GMPs accrued between 6 April 1988 and 5 April 1997 and section 9(2B) rights accrued from 6 April 1997 have to be provided on equal terms.)
Pension schemes in the UK will have been providing pensions to surviving civil partners from 2005 and same sex spouses from 2014. Some schemes will have provided these on the same basis as for opposite sex spouses, although a number will have provided them on the minimum statutory basis, using service from 5 December 2005 only.
How has this changed?
The Supreme Court has ruled that the temporal restriction in the Equality Act is contrary to EU law, specifically, the Equal Treatment Framework Directive 2000/78/EC (the Directive). The court determined that:
- Mr. Walker's husband, provided he survives Mr. Walker and is still married to him at the time of Mr. Walker's death, should receive a spouse's pension calculated on the basis of all of Mr. Walker's service, not just that from 5 December 2005 (in fact, as Mr. Walker had become a deferred pensioner in 1993, before this judgment, his husband would have been entitled only to the widower's GMP); and
- discrimination on the grounds of sexual orientation is now a principle of EU law and, as such, it is incompatible to maintain that the right applies only to service from 5 December 2005 - the date on which civil partnerships were introduced by UK law - or 2 December 2003 when the Directive was implemented.
The court considered the effect of the Directive and the principles relating to retrospective legislation. The Court of Justice of the European Union (CJEU) has developed two principles to establish the extent to which European legislation can be back-dated: the 'no retroactivity principle' and the 'future effects' principle. The no retroactivity principle is to ensure legal certainty and to protect the legitimate expectation of those who have relied upon the law as previously stated. The future effects principle is to ensure the immediate prospective application of legislation to ongoing legal relationships. The CJEU has looked extensively at how these principles apply in the employment and pensions fields. The Supreme Court considered these cases in its analysis of Walker and overruled the judgments of the High Court and the Court of Appeal, which had determined that the Directive created a right only to equal treatment once the deadline for transposing the Directive into domestic law had passed.
What does this mean for UK pension schemes?
A party to the proceedings may make an application to refer a question to the CJEU, but it is ultimately the Supreme Court that would have to make the referral if Innospec were to seek to appeal. It is not known at the current time if they will do so.
Subject to any reference to the CJEU, the Supreme Court has determined that any provision in a pension scheme's rules providing for pension payable to a surviving civil partner or same sex spouse that is calculated by reference only to service from 5 December 2005 is contrary to EU law.
And, finally, what impact might Brexit have? The intention behind the great EU repeal bill is to entrench EU law into UK law. We understand that the Government is reviewing the implications of the ruling but whether any change to the Equality Act will follow and in what timeframe is uncertain, particularly with the parliamentary focus that Brexit commands. In any event, a Supreme Court ruling is sufficient authority on which to make payment of civil partner and same sex spouse pensions on a full-service basis, pending any future appeal.
What should trustees and employers do now?
- Pensions paid to a surviving civil partner or same sex spouse on the restricted basis should be revisited with a view to making up the underpayments, arguably with interest for late payment of the instalments.
- Trustees should ask their scheme administrators to ensure that benefits payable in respect of subsequent member deaths are administered in compliance with the judgment.
- Scheme rules should be reviewed and amended to bring them into compliance with the judgment.
This article was originally published by Baker McKenzie.