The Marriage (Same Sex Couples) Act 2013 required that the Government undertake a review of survivor benefits in occupational pension schemes, considering the differences in survivor benefits between widows and widowers and between opposite-sex survivors and same-sex survivors, as well as the costs of eliminating such differences.
Background
Differences arise as a result of legislative provisions and exemptions. For example, an exemption included in the Equality Act 2010 provides that occupational pension schemes need not provide survivor benefits to surviving same-sex partners in respect of a member’s service prior to 5 December 2005 (when Civil Partnerships were introduced), except in relation to contracted-out rights accrued since 6 April 1988. As regards opposite-sex marriages:
- widowers have no automatic right under legislation to a survivor’s pension in respect of a member’s Guaranteed Minimum Pension accrued before 6 April 1988 and
- schemes are not required to provide equal benefits to men and women in respect of service prior to the date of the “Barber” judgment (17 May 1990).
The review has focussed on defined benefit schemes since, under a defined contribution scheme, the member chooses the form in which his benefits will be paid, including the amount of any survivor’s benefit, on his retirement.
The review’s findings
The review found that 27% of private sector schemes treat surviving same-sex civil partners differently from opposite-sex spouses, two thirds of those schemes restricting same-sex survivors’ benefits to service after December 2005. Smaller schemes are more likely to differentiate than are larger schemes.
The review estimates that the cost of eliminating the differences between opposite-sex and same-sex partnerships is £2.9 billion in the public service schemes (of which £1 billion would become payable immediately) and £0.4 billion in the private sector. Of course, “eliminating differences” means a retrospective increase to benefits that have already been accrued, so would be a particular burden to those schemes which have closed to future accrual and assumed that their liabilities have crystallised.
It should be pointed out that the cost could actually be significantly greater. In particular, the Government Actuary’s Department (who provided the estimate) based their calculations on aggregate data provided by the Pensions Regulator, rather than on data from individual schemes. Thus many differences in scheme rules and practice may have been masked by the aggregation of data. GAD’s report states that plausible changes to the assumptions underlying its calculations could result in the potential cost to private sector schemes being £1.6 billion (rather than £0.4 billion). Furthermore, the estimates do not include the administrative costs of implementing changes, which would fall disproportionately on smaller schemes.
On the basis of its findings the Government will decide whether to legislate to remove the remaining differences in treatment, by occupational and public service pension schemes, between men and women and between those in opposite-sex and same-sex relationships. In making its decision it notes that the cost to the private sector, while much smaller than that to the public sector, will fall upon a relatively small number of pension schemes – and that those schemes tend to be the smaller schemes who can least afford the additional cost.