"Politically correct" pension schemes - the rights of unmarried partners

Julia Miller considers how PC your pension scheme should be

The rights of unmarried partners are rarely out of the news these days. The high-profile case of Lisa Grant v South West Trains questioned whether benefits (in that case travel concessions) available to a married partner or an unmarried partner of the opposite sex should also be available to a partner of the same sex.

In the end Lisa Grant lost her case, but it does serve to highlight the fact that social structures have moved on from the familiar actuarial assumptions that 90% of pension scheme members are married at retirement, and wives are three years younger than their husbands.

Many pension scheme trustees now take the view that it is unfair to deny benefits to the long-term unmarried partner of a scheme member. After all, the member will have paid contributions at the same rate as his or her married colleagues. If schemes are to recognise unmarried partners there are a number of factors to bear in mind.

A rule change may be necessary to ensure that the term "dependant" is sufficiently widely drafted. The Inland Revenue now accepts that unmarried partners, of the opposite or the same sex, may receive benefits if there is financial dependency or inter-dependency. The rules would need to reflect this broader approach.

The trustees should have some objective factors to apply in deciding whether a relationship is sufficiently well-established to qualify for survivor's benefits. For example, an adaptation of the old "death-bed marriage" rule could be used. This type of rule excludes from the category of "spouse" someone who married within six months of the member's death.

If the scheme is contracted-out there is a limit on the extent to which an unmarried dependant may benefit if the member also had a legal spouse at the date of death. If the scheme is contracted-out on the basis of the reference scheme test a pension of at least the legally specified level must be payable to the legal spouse, except in certain circumstances (for example, if the surviving spouse was living together as man and wife with someone else at the date of the member's death). Similar restrictions apply in respect of the spouse's guaranteed minimum pension or protected rights pension. In this sort of case, one option would be to try to ensure that at least the lump sum benefit on death in service found its way to the unmarried partner.

That raises the question of the member's expression of wishes form. It will always be easier for trustees to exercise their discretion in favour of an unmarried partner if this intention is set out in the member's expression of wishes form. Members should be encouraged to keep these forms up to date by giving regular opportunities to review them. If a survivor's pension as well as the lump sum death in service benefit may be payable to an unmarried partner, members should be made aware of the significance of their nomination.

Of course, another big change facing pension schemes at the moment is earmarking and pension splitting on divorce. Although I hesitate to suggest it, in these politically correct times, how long will it be before an unmarried partner demands a share of the member's pension at the end of the relationship?