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Pension world is full of unmarried couples

In my last article, I started to visit or revisit a number of pension developments relating to sexual relationships, in particular, the rights of partners of pension scheme members to benefits from that scheme.

I would now like to develop this theme away from the issue of part-timers – involving sex discrimination, primarily against women, who form the majority of our part-time workforce – and on to the issue of unmarried couples of the same or opposite sex.

Fundamentally, this issue revolves around the willingness or otherwise of pension schemes – in the main, final-salary schemes – to recognise unmarried partners for the purposes of paying a surviving spouse&#39s pension. We should more properly refer to these as a surviving partner&#39s or simply a dependant&#39s pension.

Successive surveys from the National Association of Pension Funds have indicated that, whereas a little under 90 per cent of private sector final-salary schemes are prepared to consider paying a survivor&#39s pension to an unmarried partner of the opposite sex of a deceased scheme member, only around 40 per cent of public sector schemes give the same discretion to their scheme trustees or administrators.

For same-sex partners, these figures fall to around 50 per cent of private sector schemes and less than 20 per cent of public sector schemes.

The implications of these statistics for financial advisers should be clear, not least in relation to the identification and quantification of the possible need for life insurance for unmarried couples. If the pension scheme refuses to consider paying a pension to these partners, then the need for life insurance is increased.

Well, the NAPF has recently published the results of its latest survey which many commentators – wrongly, as it has turned out – thought might indicate a much greater willingness by schemes to consider paying pensions to unmarried partners of their deceased members.

What indicators have misled these commentators and pressure groups, especially those arguing for gay rights? First, you may remember from last year the case of Anna Homsi. She was the common-law spouse of Brad Tinnion, an SAS trooper who was killed in action. The pension scheme made a lump-sum award of only £20,000 to Homsi with a £2,000 a year pension for the couple&#39s baby daughter. Had the couple been married, Homsi would have received a pension not far short of £20,000 a year.

The Ministry of Defence increased its offer to Homsi to a lump sum of £270,000 but that still would be only enough to buy an equivalent annuity – index-linked, note – of only around half of what she would have received had the couple been married.

At the end of the day, Homsi will probably have to accept whatever she is offered but it is important to note that this offer does not constitute a precedent and the Ministry of Defence is staunchly refusing at present to amend its pension scheme rules.

Homsi&#39s case was one of many – usually unsuccessful – claims brought by unmarried partners but caught the press and public&#39s attention due to the emotive and patriotic nature of her partner&#39s death.

So are pension schemes right to take this stance against unmarried partners? Might the situation be different for unmarried partners of the same sex?

We can expect further developments in the coming months, so watch this space. However, there is still some way to go with the arguments on both sides.

In defence of intransigent pension schemes, it should be noted that there is no legal definition – either in legislation or case law – defining a common-law spouse. Even schemes which recognise common-law partners struggle with this problem. At the one extreme, an unmarried couple who have lived together for 20 years, have three young children and a joint mortgage should cause few arguments within the board of trustees.

But what about the couple who only met last night in a nightclub? During the night – spent together, we may assume – the chap professes his undying love for the young lass and even confirms this passion in writing. Unfortunately, he dies in the morning. Does she have a claim against her deceased lover&#39s pension scheme? Almost certainly not, we may assume.

But, hopefully, you can see the difficulty that trustees have with circumstances between these extremes. Does or should a claimant have to show financial dependency, long duration of relationship (if so, how long?), or the existence of dependent children?

Depending on the answers, if reluctant schemes become obliged to recognise unmarried partners for the purposes of survivors&#39 pensions, this will increase the funding costs of final-salary schemes significantly to the point where, perhaps, this increase becomes the final nail in a scheme&#39s coffin – a point I will start to expand on in my next article.

So, what can we expect to happen in the coming months and years? Well, a little publicised European directive from a couple of years ago adopted by the UK now requires employers to grant the same rights to a same-sex partner of an employee as to a legally married spouse. This might include, for example, the inclusion of a same-sex partner in a group private medical insurance policy and insurance covering the partner to drive a company car.

This directive specifically excluded pension scheme benefits but one might expect that current trends might indicate that pension schemes could soon be included under this or a similar directive. Moreover, an increasing volume of human rights legislation indicates that discrimination on the grounds of an individual&#39s sexuality could even now be ruled illegal with, therefore, pension schemes being forced to recognise same-sex partners for survivors&#39 pensions.

Okay, so Lisa Grant (a lesbian) lost this argument even after an appeal to Europe in her sexual discrimination claim against South West Trains a few years ago but times are changing.

Note that this directive does not include unmarried partners of the opposite sex. This might sound like what might be called reverse sexual discrimination in favour of homosexuals. However, the counter-argument suggests that if a heterosexual couple desire the legal rights of a legally married couple then, quite simply, they should get legally married – a facility not yet available in this country to homosexual couples.

Indeed, were it not for the emotive nature of Homsi&#39s claim, this argument could and probably would have been used by the pension scheme. That is to say, if Homsi and Tinnion really intended their relationship to be the equivalent of a married couple, they should have got married. The fact that they did not get married could suggest that they did not seek such a display of permanence in their relationship. Sure, not an endearing argument but it does have some logic.

So, although I feel that we will soon see survivors&#39 pension benefits extended as a right to same-sex partners of deceased scheme members, I am not certain that this will be extended to heterosexual partners.

Watch this space but, in the meantime, you may want to keep one eye on a steady flow of current and future claims from transsexual partners of scheme members. Are these same-sex claims or opposite-sex claims? I will keep you informed in my articles if you feel it might be important to your client bank.

Keith Popplewell is managing director of Professional Briefing

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