Summary and implications

The first same-sex marriages can take place in England and Wales on 29 March 2014. The legislation gives surviving same-sex spouses similar occupational pension rights to civil partners.

Schemes, including those closed to future accrual, need to decide what benefits they will provide to surviving partners (statutory minimum or more generous) and consider what amendments are required to achieve this. This largely affects defined benefit schemes but other schemes may also need to consider making changes, particularly to any insured death-in-service benefits and pension sharing on divorce provisions.

  • If no action is taken then 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.
  • 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.

We would recommend that schemes adopt the same benefits for surviving same-sex spouses as they have for civil partners. This will avoid complications should a member who is already in a civil partnership subsequently choose to marry.

Same-sex marriage: impact on occupational pension schemes

The starting point is that a marriage of a same-sex couple will have the same legal effect as a marriage of an opposite-sex couple. This means that any references in law to marriage, or connected terms such as "spouse", will apply equally to a same-sex married couple as to one of the opposite sex, unless the legislation provides otherwise.

Crucial for pension schemes is a provision which states that 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. This means that a same-sex spouse will not automatically be a "spouse" for the purposes of the scheme and, if nothing is done after 29 March, will only be entitled to the minimum benefits required by equality law (these are covered in more detail below). Care should be taken in any future scheme amendments affecting spouse benefits as they may have unintended consequences for same-sex spouses.

Providing the statutory minimum: still good practice to amend

Benefits payable to a surviving opposite-sex spouse must be payable on the same basis to a surviving same-sex spouse (only in relation to pensionable service on or after 5 December 2005)

The Equality Act requires that where benefits are payable to a surviving opposite-sex spouse then they must be payable on the same basis to a surviving same-sex spouse (only in relation to pensionable service on or after 5 December 2005).

The new law does not alter the effect of any private legal instrument made before it comes into force

This requirement is overriding and trustees must pay the benefits regardless of the scheme rules. Even where the statutory minimum is to be provided it would be good practice to document this as a rule amendment and in scheme literature so that the benefits payable are clearly stated.

The 5 December 2005 limit is currently under review. It has been challenged as being in breach of European Union law. The outcome of the review is expected by July 2014.

If no spouse benefits are currently provided then there is no requirement to introduce them. Also, it remains lawful to offer benefits to surviving spouses and civil partners but not to surviving members of other forms of partnership. However, where benefits are provided (for example, to co-habiting partners) then there must be no discrimination on the grounds of sexual orientation.

Being more generous: need to modify the rules

The decision to allow benefits to be payable on a more generous basis will usually lie with the employer who will be meeting the cost

It is open to schemes to provide surviving same-sex spouses with pension benefits for the full period of pensionable service. This will usually require an amendment or modification to the scheme rules although it might be possible to use the existing augmentation power in individual cases.

The decision to allow benefits to be payable on a more generous basis will usually lie with the employer who will be meeting the cost.

Death-in-service benefits

Lump sum death-in-service benefits are usually based solely on a multiple of salary rather than length of pensionable service and will therefore be payable in full. In most schemes the lump sum is payable under discretionary trusts and the scheme rules will list the possible recipients (generally with any surviving spouse at the top of the list).

Trustees must treat a same-sex spouse in exactly the same way they would an opposite-sex spouse when considering the distribution of the lump sum. Trustees using nomination or expression of wish forms should review the wording of the form to ensure it accommodates same-sex spouses.

Contracted-out schemes: amendments required

The contracting-out legislation is not overriding and amendments will be needed to provide pension benefits for surviving same-sex spouses.

As for civil partners, GMPs must be provided in the same way as for a widower. This is 50 per cent of the GMP accrued after 5 April 1988. In relation to post April 1997 service, a pension of 50 per cent of the reference scheme pension should generally be payable to the surviving spouse of a same-sex marriage.

Pension sharing on divorce

The statutory provisions for pension sharing and earmarking on divorce will apply equally to divorcing same-sex spouses. Scheme rules should be reviewed and if necessary amended to allow for this.

Making amendments to the scheme

In many schemes, an amendment to allow for a same-sex survivor's pension could have a knock on adverse effect on the contingent benefits of existing children or dependents. In order to avoid problems with section 67 (which restricts amendments to accrued rights), regulations have been laid which exempt amendments made in order to treat a surviving same-sex spouse in the same way as a surviving opposite-sex spouse from that section.

There is also a power in regulations for trustees to modify schemes to introduce benefits for same-sex survivors (with employer consent in some cases) which could be used where the scheme's own power of amendment does not allow the change.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.