Pensions Stop Press - Walker v Innospec - Court of Appeal rules same sex survivors’ pensions may be restricted to post-2005 service

The Court of Appeal (CA) has ruled unanimously that the calculation of pensions for surviving civil partners may be restricted to the period of the member's service on and after 5 December 2005, the date the Civil Partnership Act became law.

The decision will not be referred to the European Court of Justice, as the CA  was sufficiently confident of its interpretation of the law to consider the case settled at a national level. Neither will there be an appeal to the Supreme Court.

In November 2012, an employment tribunal (ET) decision cast doubt on the Government's implementation of the Equal Treatment Framework Directive (the Directive) through the Equality Act 2010 (EqA 2010).

In Walker v Innospec Ltd and others, Mr Walker, who retired in 2003, claimed that Innospec had discriminated against him as the Scheme provided a spouse's pension to a member's civil partner, but only in relation to service after 5 December 2005.

The employer relied on the exemption in paragraph 18 of Schedule 9 to the EqA 2010 (the Exemption), under which civil partners must be treated in the same way as spouses on the death of a scheme member, but only in respect of pensionable service completed after the Civil Partnership Act 2004 came into force. The ET ruled that the company had directly discriminated against Mr Walker in refusing to provide a spouse's pension for service accrued before 5 December 2005, which was in contravention of the Directive. Further, the Exemption should be interpreted compatibly with the Directive, and it was unlawful for pension schemes to provide anything other than a full survivor's pension for civil partners.

However, this decision was overturned on appeal, with the Employment Appeal Tribunal (EAT) deciding that the Exemption was compatible with the Directive. The EAT considered that it could not be asked to “legislate rather than interpret” so as to conclude that it was incompatible. To do so would be “diametrically opposed to the thrust of the legislation in this particular respect and to the apparent intention of Parliament”.

The appeal was heard in the CA together with that of Mr O’Brien QC. Mr O’Brien was appealing a decision of the EAT that the calculation of his pension should take into account only that part of his service which occurred after the transposition into domestic law of the Part Time Workers Directive on 7 April 2000. This appeal was also unsuccessful.

The CA considered that the first two relevant principles of EU law were the “no retroactivity” principle and the “future effects” principle:

• the no retroactivity principle is that EU legislation does not have retroactive effect unless it is clear that the legislator intended such an effect; and
• the future effects principle is that amending legislation applies immediately, unless otherwise specifically stated, to the future effects of a situation which arose under the law as it stood pre-amendment. In deciding what is meant by “a situation which arose”, the critical issue is whether the legal effects of the situation in question have been exhausted before the law was changed. If they have, then the situation is “permanently fixed”. In a previous case, the Attorney General had given as an example a claim for compensation arising out of a traffic accident which was held to have become permanently fixed at the date of the accident.

The application of one or other of these principles depends on whether the situation has become permanently fixed before a new law comes into force.

The following principal arguments were made on behalf of Mr Walker:

• The act of discrimination on which Mr Walker’s case was based was the refusal of the Scheme to confirm that his civil partner (now his husband) would be entitled to a full survivor’s pension. The act took place after the Directive came into force and the future effects principle applied.
• The prohibition on discrimination on the ground of sexual orientation is a fundamental principle of EU law. Therefore, the Exemption must either be read in such a way as to make it compatible with the Directive or, if that was not possible, the Exemption should be dis-applied.

Lewison LJ gave the leading judgment in the Court of Appeal and held that:

• The Scheme’s trustees could not confer on Mr Walker a benefit to which he was not entitled. At the time Mr Walker accrued his benefits under the Scheme when he was in service, the discriminatory treatment of which he complained was lawful. Under the principle of no retroactivity, conduct which was lawful when it occurred cannot retroactively become unlawful.
  Neither did the future effects principle apply because Mr Walker’s entitlement to pension was permanently fixed as he earned it, and could not be enhanced after his retirement. His entitlements must be judged by reference to the EU law in force at the time of his service.
• The CA noted that the nature of the entitlement to pension benefits had been analysed in the EU case of Ten Oever, which concluded that the employee’s service itself gave rise to his future pension rights. The extent of those rights should be determined on the basis of the law which applied at the time of the period of service on the basis of which those rights were acquired (Lewison LJ’s added emphasis).

In dismissing Mr Walker’s appeal, Underhill LJ acknowledged that “Mr Walker and his husband will find this conclusion hard to accept. But changes in social attitudes, and the legislation which embodies those changes, cannot fully undo the effects of the past”.

The differences in survivor’s benefits for heterosexual and same-sex partners in this case are particularly pronounced as Mr Walker’s surviving husband would be entitled to a pension of approximately £500 a year, whereas a surviving widow’s annual pension would be in the region of £41,000.

There have been rather dramatic press headlines on the financial impact of this case but, clearly, those schemes which have only provided post-2005 accrual will be spared additional costs. Many schemes have already decided to equalise survivor benefits for all periods of service, irrespective of the sexual orientation of the members to whom they apply.

The essential message from this judgment is that the Courts are not prepared to manipulate legislation to give it retrospective effect, no matter how desirable and fair such a step may appear in a particular case.