“If Mr Walker was married to a woman, or, indeed, if he married a woman in the future, she would be entitled on his death to the pension provided by the scheme to a surviving spouse. When the claim was issued, the value of that “spouse’s pension” was about £45,700 per annum. As things stand at present, Mr Walker’s husband will be entitled to a pension of about £1,000 per annum (the statutory guaranteed minimum).”
This is how the Supreme Court judgement described the situation in which Mr Walker found himself, in relation to his membership of Innospec’s DB scheme. How did this happen? Ironically it was the anti discrimination provision in the Equal Treatment Framework Directive, coupled with scheme rules, that allowed this disparity to occur in respect of same sex survivors’ pensions.
The more than apparent inequity in his situation forced Mr Walker to take the matter through the Courts, beginning at an Employment Tribunal in 2013 and ending last week at the Supreme Court. The Justices ruled that when considering the anti discrimination point relied on – when discrimination occurs is when the pension becomes payable – that would be when Mr Walker dies and an equal survivor’s pension is denied to his partner. For that reason the Court unanimously found that any survivor’s pension payable to his same-sex spouse should be based on his entire pensionable service, as it would be if he were in an opposite-sex marriage. It should not be limited to service accrued after 5 December 2005 (i.e. when the Civil Partnership Act 2004 came into force).
The law is now clear. It is a welcome clarification and rectification of an obvious inequity.
Some schemes may of course count the cost of the ruling. The impact on occupational pension schemes in the private sector may not be wide ranging. Many schemes are already operating on the equal treatment of survivor benefits for same sex couples, and their actuarial valuations may already adopt a prudent assumption for the proportion of members who are “married”, both of which would limit the effect of the ruling.
It is the public sector that will experience the biggest effect, with a report from the Department of Work in Pensions (“DWP”) in 2014 estimating the cost to be around £3 billion.
However, at the end of the day, given the common sense of this decision being plain for all to see, it is a cost that schemes were bound to experience at some stage. The fact the DWP commissioned a report in 2014 to specifically assess the impact of equalising survivor benefits proves that foreseeability. So if Mr Walker had not embarked on his journey from the Employment Tribunal in 2013 to the Supreme Court, someone else surely would have in time.
So, what actions do schemes need to take? In practical terms schemes should:
- Check their rules to see if there is different treatment for same and opposite sex spouses. If there is, then this disparity needs to be addressed.
- Whilst it is unlikely that there will be a material impact on scheme funding, speak to the Scheme Actuary to check.
- There may be a requirement for a rectification exercise if any benefits to members have been paid reflecting post 5 December 2005 accrual only.