On 12 July 2017, the Supreme Court handed down its much-anticipated decision in the case of Walker v Innospec Limited and others  UKSC 47. In a judgment which is likely to bring an end to a long period of uncertainty for same sex couples, the Court has ruled that an exemption which allows pension schemes to pay smaller spouse’s pensions to a surviving civil partners or same sex spouses is incompatible with EU law and must be disapplied.
Mr Walker’s claim
The EU Framework Directive requires member states to prohibit discrimination in relation to employment on a number of grounds. These include discrimination on grounds of sexual orientation. In the UK, this is reflected in the Equality Act 2010, which implies a non-discrimination rule into occupational pension schemes. The Equality Act also, however, contains an exemption which allows different treatment for rights “accrued” or “payable in respect of periods of service” before 5 December 2005 (the date the Civil Partnership Act came into force). For pension schemes this has meant that, for pensionable service before 5 December 2005, the spouse’s pension for a civil partner or same sex spouse can be restricted to contracted-out spouse benefits accrued from April 1988.
The exemption in the Act seems to have been based on an idea that the time when a pension scheme member will be discriminated against due to their sexual orientation is the time at which they are accruing their benefits. Under UK law, it was not possible to enter into a civil partnership before 5 December 2005. As such, it was not thought that the Framework Directive would protect pension rights accrued before that date.
For same sex couples, this difference in treatment could have a phenomenal effect. Mr Walker’s case demonstrates this. He completed all of his pensionable service before December 2005 and, for him, the Equality Act exemption reduced a spouse’s pension of £45,700 a year to a pension of just £1,000 a year.
In a judgment which makes fascinating reading, the Supreme Court concluded that the point at which a pension scheme member is discriminated against because of their sexual orientation is not the point at which they accrue benefits. Instead, it is the point at which a spouse’s pension falls to be paid. The effect of this is that, where a spouse’s pension falls to be paid after the Framework Directive has been transposed into national law and national law recognises same sex couples, the Directive protects all pension, whether accrued before or after December 2005. Because the Equality Act exemption allows different treatment for pre-5 December 2005 pension, it does not reflect this. As such, the exemption is incompatible with the Framework Directive and must be disapplied.
Osborne Clarke comment
For Mr Walker, this is likely to be the end of a long running legal battle. It will mean that he can be confident that his partner will receive the full spouse’s pension of £45,700 a year.
Schemes which already provide the same spouse’s pension for same sex couples as for heterosexual ones do not need to take any action. However, schemes that have been relying on the Equality Act exemption to pay a reduced spouse’s pension for pre-5 December 2005 pensionable service do need to speak to their legal advisers and the scheme actuary about changing their practice going forwards. They also need to consider reviewing the benefits paid on the death, since 2005, of any member who had a civil partner or same sex spouse.
If you would like to discuss how this decision may affect your scheme, please contact one of the experts listed below.