The Court of Appeal has decided in favour of retaining the status quo following an appeal by a pensioner in a Civil Partnership about the pension rights his partner would receive on his death.
The case centres on Mr Walker, who had retired from Innospec, a chemicals manufacturer in 2003, having accrued 23 years’ of service. In 1993, he began living with his partner, and the two entered into a Civil Partnership soon after the Civil Partnership Act 2004 came into force. (Mr Walker subsequently married his partner when the law was amended to permit same sex couples to marry).
The legal minimum
At the heart of the case is the point that the relevant UK pensions legislation requires that occupational schemes must as a minimum, provide the survivor of a deceased civil partner or same sex spouse with survivors’ benefits, on a less-generous basis than applies in relation to marriages between opposite-sex spouses.
The survivor need only be given benefits in relation to the deceased member’s accrual of contracted-out benefits back to 1988, and all other benefits accrued since 5 December 2005, the date when Civil Partnerships were introduced in law.
Many employers and trustees have decided to be more generous than the legal minimum, by providing civil partners and same sex spouses with benefits on exactly the same basis as applies to opposite sex spouses. Unfortunately this was not the case for Mr Walker, as Innospec opted for the minimum.
What was at stake?
Owing to his seniority and significant service, Mr Walker was entitled to an annual pension of around £82,000. A female spouse would have been entitled to an annual widow’s pension of half off this on his death – around £41,000.
However, because all of Mr Walker’s service was accrued before 2005, and therefore excluded by operation of the statutory minimum, the value of benefits his partner would receive was only around £500 annually – relating to just the contracted-out benefits between 1988 and 2003.
Round One – The claim in the Employment Tribunal (ET)
Mr Walker’s line of attack, although directed through his former employers Innospec, turns on whether the UK legislation reflects the Equality Act 2010 and the EU legislation which underpins it.
Initially, in response to his complaint, the ET had upheld his claim that the minimum option breached the ‘equal treatment rule’ implied into every pension scheme’s rules by section 61 of the Equality Act. The ET also found that the Equality Act was incompatible with the EU legislation which underpinned it, the Equal Treatment Directive 2000 (2000/78/EC).
On that basis, all Mr Walker’s service would be taken into account when calculating his partner’s pension in the event of his death.
Round Two – The Employment Appeal Tribunal (EAT)
Innospec launched an appeal in the EAT contesting that position.
The judgment of the EAT overturned both elements of the ET’s finding, chiefly on the basis that:
(1) The minimum option did give proper effect to the Equality Act, since it was only necessary in law to ensure discrimination did not take place once the concept of Civil Partnership had been legally recognised in UK law, and
(2) The Equal Treatment Directive did not contain a requirement for it to apply retrospectively, so in respect of all periods before UK law expressly introduced Civil Partnership, there could have been no requirement against discrimination.
Round Three – The Court of Appeal
Backed by the human rights organisation Liberty, Mr Walker’s lawyers asked the appeal judges to set aside the EAT, ruling on the grounds that it was contrary to the Equal Treatment Directive.
The three Court of Appeal judges unanimously rejected that plea. In the leading judgment, Lewison LJ set out the fundamental basis of the Court’s judgment:
“It does not seem to me that the pension trustees can be required to confer on Mr Walker a benefit to which he is not entitled […] At the time when he earned that entitlement, the discriminatory treatment of which he complains was lawful”.
Lewison LJ also agreed with counsel representing the DWP (which had been joined as an interested party to the case) that the EU law concept of ‘no retroactivity’ – which generally bars laws having effect on periods before that law came into force “means that the conduct which was lawful when it occurred cannot retroactively become unlawful”.
Rather patiently, after dismissing the claim on this initial ground, the Court went on to consider (and dismiss) several other alternative arguments as raised by Mr Walker’s counsel. While the detail of these is beyond this blog, the fact the Court felt it necessary to address them in detail, and dispose of them, indicates that it may wish to dissuade Mr Walker against any further appeal.
Few pensions professionals expected that the Court of Appeal would decide otherwise than it did. To find in Mr Walker’s favour, would have meant defying the clear intention of Parliament in enacting the minimum compliance option.
It remains possible, if the case is appealed to the Supreme Court, that the judges there could take such a step, but given the Court of Appeal’s extensive analysis of both UK, and EU law, which comprehensively addresses Mr Walker’s arguments, the prospects of success for any such claim seem unlikely.
It has been calculated that the burden across all UK occupational schemes, would be around £3 billion, if the law required all of a member’s service to be reflected in the survivorship benefits of a surviving civil partner or same sex spouse. The judgment by the Court of Appeal takes us further away from that scenario. But it’s not all over just yet.
In addition to the potential for an appeal to the Supreme Court by Mr Walker, the Government was awaiting the Court’s decision in this case before deciding whether or not to retain the statutory minimum. The comments made by Lewison LJ may act to further dissuade Government from doing so, but we will wait and see.