Same sex survivor benefits in occupational pension schemes – Court of Appeal dismisses member's appeal

In a much anticipated decision, the Court of Appeal has dismissed an appeal from a member of a pension scheme whose same sex spouse would receive a survivor’s pension of around £500 a year if the member died, rather than a pension of around £41,000 if that member had been married to a woman. The case throws up some interesting issues about the interplay between domestic legislation and EU legislation in the pensions arena.

Same sex survivor benefits – a recap

Civil partners and same sex spouses of occupational pension scheme members are entitled to be treated in the same way as opposite sex spouses, in terms of the survivor benefits due on that member’s death. However this only applies in relation to benefits that are accrued in respect of pensionable service from 5 December 2005. This is the date when the Civil Partnership Act 2004 came into force in England and Wales.

The Marriage (Same Sex Couples) Act 2013 confirmed that same sex married couples are entitled to the same survivor’s benefits as those available to civil partners. Therefore, such benefits can be restricted to those resulting from pensionable service accrued from 5 December 2005.

The position is slightly different for contracted-out benefits, where same sex survivor benefits do accrue in respect of pensionable service before 5 December 2005. There is, of course, nothing to stop a pension scheme from being more generous than the legislation requires. Indeed, many schemes already provide same sex partners with the same survivor benefits as opposite sex spouses, irrespective of whether the pension was accrued before or after 5 December 2005.

Walker v Innospec

Mr Walker sought clarification in 2006 of what pension his civil partner would receive from his former employer’s (Innospec) pension scheme in the event of his death. Mr Walker had retired in 2003, and was in receipt of a pension of around £80,000. Mr Walker was told that his civil partner would receive a pension of around £500 a year, based on Mr Walker’s contracted-out benefits.

Mr Walker brought a claim in the Employment Tribunal (ET) against his former employer and the trustees of the pension scheme on the basis that they had breached the ‘non-discrimination rule’ which domestic legislation implies into all occupational pension schemes. The ET held that Mr Walker had suffered discrimination which breached the non-discrimination rule, and the trustees and his former employer could not rely on the domestic legislation which purported to only catch pensionable service after 5 December 2005.

Innospec appealed to the Employment Appeal Tribunal (EAT), and the DWP was joined as an interested party given the potential wider significance of the EAT’s decision. The EAT overturned the ET’s decision and upheld Innospec’s appeal. Mr Walker then appealed to the Court of Appeal.

Court of Appeal’s decision

The Court of Appeal has today (6 October 2015) dismissed Mr Walker’s appeal.

In a thorough examination of the Equality Act 2010 (the current domestic legislation which enshrines the non-discrimination rule), the Court has held that the provision in that Act which restricts same sex survivor benefits to post 5 December 2005 pensionable service is not incompatible with the EU Equal Treatment Directive which established an overarching framework for combating discrimination in the EU. In addition, the Court held that the impact of that provision on UK occupational pension schemes is sufficiently clear.

The Court reaffirmed some important principles of EU law which are often taken for granted in the occupational pensions arena:

• The ‘no retroactivity’ principle – EU legislation does not have retroactive effect unless it is clear that the legislator intended such an effect; and
• The ‘future effects’ principle – amending legislation applies immediately to the future effects of a situation under the law as it stood before amendment.

The Court held that these two principles effectively complemented each other such that, in the case of Mr Walker, at the time when he earned his pension entitlement the discriminatory treatment he is complaining of was not unlawful under our domestic legislation. In addition, members’ accrual of vested rights, including for Mr Walker, are gradual. Therefore as all of Mr Walker’s pensionable service in the Innospec Scheme was before December 2005, his civil partner (now his husband) was only entitled to the amount of survivor’s pension that was communicated to Mr Walker back in 2006.

It is too early to say whether Mr Walker will appeal the Court’s decision, but it seems that there could be more to come on this case given the amount of interest it has attracted. Jonathan Hazlett (Partner and Head of Pensions at Osborne Clarke) comments on the decision in today’s Daily Telegraph and Financial Times.