One in four defined benefit schemes do not treat same-sex and opposite-sex couples equally on survivor benefits and the TUC is pressing government to close the gap, which could cost around £3.3bn.
Schemes are only required to offer spousal benefits to those in civil partnerships and same-sex marriages based on their pensionable service since December 5 2005, when the Civil Partnership Act 2004 came into force.
Case study: Telefonica Pension Plan
The £1.16bn Telefonica UK pension plan, which covers staff of mobile telecoms company O2, provides equal survivor benefits to all members.
Pensions manager Jo Udall said: “We’ve always been very equal in terms of how we treat our members."
Telefonica operates a hybrid scheme with a closed defined benefit section comprising 3,838 deferred members and 727 pensioners.
Udall said when same-sex partner legislation came into effect, it was simply a case of “tightening up” the scheme rules to make explicit the new terms.
“It was really straightforward because most of it was in there anyway,” she said.
Its membership profile is still relatively young, so the scheme has not yet encountered a scenario in which a member has died and left a same-sex partner.
“So we haven’t actually tested this so far but I do know that our scheme rules wouldn’t discriminate against someone whether same sex or opposite sex, everyone is treated equally,” Udall said.
An earlier decision by the Employment Tribunal in the case of Mr John Walker v Innospec Ltd had found that a civil partner’s pension should not be restricted to this period. But then in February 2014, the Employment Appeal Tribunal overturned this verdict, ruling that the original restriction was compatible with EU law.
The government followed this with a review into survivor pension inequalities and exactly one year on, the TUC is pushing for it to equalise benefits.
The TUC said in a statement today: “[The government’s] findings were published a year ago today but it has still not made a decision on whether to end the discrimination. This is despite the review showing that the costs of equalising would be negligible for most schemes.”
Mr Walker is due to challenge the 2005 cut-off in the Court of Appeal early next week, the TUC said.
A DB scheme member with 23 years’ service, under current rules his civil partner will be entitled to a survivor pension of just £500 a year, compared with £41,000 a year if he was married to a woman.
Widows and widowers are similarly affected by gender equality rules which affect service pre-1988.
Numbers affected
The union said around one in four DB schemes do not treat same-sex survivors equally and estimated that in the private sector alone there are around 70,000 members who will leave behind a same-sex partner.
However Anna Rogers, senior partner at law firm Arc Pensions Law, said most of the larger DB schemes she has worked with have given full survivor pensions to same-sex partners, and many also provide dependants’ pensions for cohabitees. “So there is no extra cost in giving full rights because they would have paid it anyway, unless the couple had separated,” she said.
[The government’s] findings were published a year ago today but it has still not made a decision on whether to end the discrimination. This is despite the review showing that the costs of equalising would be negligible for most schemes
Trades Union Congress
But the issue could be more complex for those schemes that have provided the legal minimum, Rogers added, as contracted-out schemes have to provide the minimum benefit required for service pre-2005, when the act came into force.
“It is clear what this means for benefits up to 1997 – nothing for pre 1988 service and the survivor's [guaranteed minimum pension] for service between 1988 and 1997,” she said.
“But after April 6 1997 the test for contracting out changed and the law is unclear as to what the minimum is.”
Due to the small numbers involved Rogers said the costs to schemes are likely to be small but that the issue posed a dilemma.
“It's all a big muddle. The logical answer is clear but it would be hard to equalise between a) opposite-sex married people, and b) CPs or same-sex married people, without also equalising between widows and widowers – and that may cost a lot more,” she said.
Questions over cost to schemes
Ian Neale, director at pensions technical specialists Aries Insight, said it was noted during the earlier Walker appeal that the costs of any retrospective extension could be very substantial “although a wide cost range was cited in evidence”.
He added: “I suspect there are no reliable statistics available.”
A Department for Work and Pensions spokesperson said: "Full equalisation would cost around £3.3bn and the implications for pension schemes [are] complex", adding the government would have to consider the full impact of this issue before considering changes to legislation.
The TUC refutes previous government arguments that it would be unfair to impose retrospective costs onto schemes by backdating survivor benefits for same-sex couples and widowers, saying these costs can be “easily met”.
The statement added: “The cost of backdating survivor pensions is negligible compared to the overall liabilities of pension scheme.”
