When it comes to pensions, a surviving partner in a same-sex marriage will only be entitled to benefits accrued since 2005, says Sarah Phillips
THE date 4 February, 2014, has been described as a “momentous day for equality” with the Scottish Parliament passing the Same Sex Marriage Bill, which will allow same-sex marriages to take place in Scotland as early as autumn 2014. Similar laws have been passed in England and Wales, and the first same-sex marriages south of the Border will take place on 29 March, 2014.
As a result of this new legislation, the marriage of a same-sex couple will have the same legal effect as the marriage of an opposite-sex couple. Any references in law to marriage, or to related terms such as “spouse”, will (generally speaking) apply equally to a same-sex married couple as to one of the opposite-sex. This, however, will not be the case in relation to pensions.
Why is that? In essence, the new law does not alter the effect of any private legal instrument made before it comes into force. This includes pension scheme trust deeds and rules and means that a same-sex spouse will not automatically be a “spouse” for the purposes of the scheme. If nothing is done, a same-sex spouse will only be entitled to the minimum benefits required by equality law.
Under the UK-wide Equality Act, where pension benefits are payable to a surviving opposite-sex spouse, they must be paid on the same basis to a surviving same-sex spouse, but only in relation to pensionable service on or after 5 December, 2005, (additional requirements apply to contracted-out benefits).
That 5 December, 2005, limit is currently under review because of claims that it breaches the EU Equal Treatment Directive. The outcome of the review is expected by July 2014.
Pension schemes will need to decide what benefits they will provide to surviving same-sex spouses (either the statutory minimum or more generous benefits) and consider whether amendments are needed to the scheme rules in order to achieve this.
• If no action is taken, a surviving same-sex spouse will be entitled to the same benefit as a surviving opposite-sex spouse, but (for non-contracted-out rights) only in relation to pensionable service since 5 December, 2005. n Amendments will be needed to contracted-out schemes to reflect the right of a surviving same-sex spouse to a GMP on the same basis as a widower.
• Lump sum death-in-service benefits calculated as a multiple of salary will be payable in full on the same basis as for a surviving opposite-sex spouse.
Pension schemes could choose to treat surviving same-sex spouses equally and provide spouse’s benefits for the full period of the member’s pensionable service. This will usually require an amendment to the scheme rules (although augmentation of an individual member’s benefits may be possible under the scheme rules as they stand).
In many schemes, such an amendment could potentially reduce benefits that would otherwise be payable to children or other dependents under the scheme rules and legislative protections currently exist to protect against such changes.
The government has recognised this and has issued regulations exempting amendments made in order to treat a surviving same-sex spouse in the same way as a surviving opposite-sex spouse from the those legislative restrictions. It will usually be the employer who decides whether to allow benefits to be payable to same-sex spouses on the more generous basis; it will of course be meeting the cost. The agreement of the scheme’s trustees is also likely to be needed, depending on the scheme’s amendment power.
But most defined benefit pension schemes are funded on the basis of an assumption that the majority of members are married and full spouse’s benefits will be payable. So choosing not to provide full benefits could be argued to be a windfall for the sponsoring employer (although no doubt a welcome one in the current economic climate).
The introduction of legislation providing equal rights to same-sex partners who want to marry is clearly a defining moment. But, it may have been easier for all concerned if the government had required the change to have retrospective effect.
For the time being at least, in the provision of pension benefits, all marriages are not created equal.
• Sarah Phillips is a partner and head of pensions at Burness Paull LLP www.burnesspaull.com