Pensions Act 2004 and the Equality Act 2010 (Amendment) (Equal Treatment by Occupational Pension Schemes) Regulations 2023

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Pensions Act 2004 and the Equality Act 2010 (Amendment) (Equal Treatment by Occupational Pension Schemes) Regulations 2023.

My Lords, I shall speak also to the Occupational Pension Schemes (Amendment) (Equal Treatment) (Northern Ireland) Regulations 2023, the Pensions Act 2004 (Amendment) (Pension Protection Fund Compensation) Regulations 2023 and the Pensions (Pension Protection Fund Compensation) (Northern Ireland) Regulations 2023. These regulations were laid before this House on 18 September 2023. In my view, the provisions in these sets of regulations are compatible with the European Convention on Human Rights.

When the UK left the European Union, much EU law was initially preserved to ensure legislative continuity. Now, however, some pieces of law need to be restated. This is because following the Retained EU Law (Revocation and Reform) Act after 31 December 2023 certain retained EU law addressed in court cases will stop applying. Therefore, to remove any legal ambiguity for occupational pension schemes, DWP is restating the law addressed in three court cases—Allonby, Walker and Hampshire—the former only in relation to the extent that it applies to guaranteed minimum pensions.

We will be debating four sets of regulations: a set of two instruments for Great Britain and Northern Ireland covering the Allonby and Walker judgments and a similar set of two instruments for the Hampshire judgment. At the request of the Northern Ireland Executive, the Government have agreed to legislate on behalf of the Department for Communities in Northern Ireland. I will start therefore with the Pensions Act and the Equality Act 2010 (Amendment) (Equal Treatment by Occupational Pension Schemes) Regulations 2023 and its Northern Ireland equivalent that relate to the Allonby and Walker judgments.

Allonby is about the right to equal pay between men and women where discrimination has arisen in an occupational pension scheme because of legislation on guaranteed minimum pensions—GMPs. Regulation 2 restates the law dealt with in the European Court of Justice’s Allonby judgment, but only to the extent it applies to guaranteed minimum pensions legislation from 17 May 1990 onwards. I will provide a little background, as there are a few things that need to be brought together. First, GMPs, which were a part of the occupational pensions system from 1978 to 1997, are unequal for men and women, reflecting general differences in treatment between men and women in legislation at the time. There are disparities, including the age at which guaranteed minimum pensions can be paid: age 65 for men and age 60 for women. These differences in treatment can result in men and women in identical employment receiving different amounts of pension benefits from their occupational pension scheme.

Secondly, the European Court of Justice’s Barber judgment of 17 May 1990 found that pension benefits must be paid to men and women on an equal basis for pensions earned from the judgment date onwards. This means that pension schemes are required to equalise pensions to correct the unequal impact caused by members having a GMP.

The effect of the Allonby judgment was to override this requirement of the equality legislation as it applied to GMPs earned from 17 May 1990. Therefore, because of Allonby, schemes are required to equalise pensions for the unequal effects caused by the GMP legislation even in the absence of a real-life comparator. Regulation 3 will make the same changes for the Pension Protection Fund.

I turn to Regulation 4. The Walker judgment was about pension rights on which survivor benefits are based where a member is in a same-sex marriage or civil partnership. Survivor benefits are important because they provide the member with a degree of reassurance that, should the worst happen, their surviving spouse or civil partner will continue to receive some ongoing financial support from the member’s scheme.

I will provide the Committee with some background history. Before 2005, same-sex couples could not enter into a legally recognised relationship such as a marriage. This meant that often they did not have that same reassurance. While same-sex civil partnerships were introduced in December 2005, occupational pension schemes were permitted to calculate civil partnership survivor benefits based on the scheme member’s pension rights earned only since that date. The result of this was that someone who retired in 2010 could have 40 years of pension rights built up over a lifetime, but their civil partner could inherit less than five years of survivor benefit rights. A determined man, Mr Walker, challenged the legislation. The UK Supreme Court concluded that the exception to the non-discrimination rule in the legislation was not compatible with the EU’s framework directive on equal treatment in employment.

The Government remain committed to the outcome of the Walker judgment. It is therefore important to remove any doubt by amending the Equality Act to reflect it. The changes we are making will mean that legislation will not allow schemes to restrict the pension rights used to provide survivor benefits for survivors in a same-sex legal relationship to only those earned after December 2005. The change to legislation will give affected scheme members peace of mind and certainty.

I turn to the Hampshire judgment. I will start by giving some context to the Pensions Act 2004 (Amendment) (Pension Protection Fund Compensation) Regulations 2023 and the corresponding Northern Ireland regulations. These regulations retain the effects of the Hampshire judgment in domestic legislation. Mr Hampshire, a member of the Turner and Newall pension scheme, took early retirement in the late 1990s. His employer subsequently became insolvent and the scheme was assessed by the Pension Protection Fund. Under Pension Protection Fund rules, Mr Hampshire’s benefits were substantially reduced because he was below the scheme’s normal pension age when his employer became insolvent. Mr Hampshire took the Pension Protection Fund to the European court. The court ruled that former employees must receive at least 50% of the value of their pension benefits in the event of their employer’s insolvency.

There was further litigation in the domestic courts which concluded with the UK’s Court of Appeal upholding the High Court’s ruling that the cap on Pension Protection Fund compensation constituted unlawful age discrimination. The cap previously applied to individuals below their scheme’s normal pension age when their employer became insolvent. The Pension Protection Fund is now identifying its members and members of the Financial Assistance Scheme affected by the Hampshire judgment, increasing their payments and paying arrears, where appropriate, to comply with the terms of the judgment. It is also uncapping the compensation payments of its affected members and backdating arrears.

In practice, most Pension Protection Fund members receive more than the 50% minimum established by the Hampshire judgment and few were affected by the compensation cap. However, without the Pensions Act 2004 (Amendment) (Pension Protection Fund Compensation) Regulations 2023 and the Northern Ireland equivalent, the Hampshire judgment would sunset on 31 December, and there would be no entitlements under the judgment in respect of insolvencies arising after that date. Retaining the effects of the Hampshire judgment beyond the sunset date means that all members of eligible pension schemes affected by the Hampshire judgment can be reassured that they will receive at least 50% of the value of their original pension benefits in the event of their employer’s insolvency.

The regulations also remove redundant references to the Pension Protection Fund compensation cap from the legislation to improve its clarity, ensure that it reflects the High Court’s decision, and provide the Pension Protection Fund with statutory cover. The Pension Protection Fund protects most private sector defined-benefit schemes, has almost 300,000 members and offers a vital safety net to members whose employer has become insolvent and therefore can no longer support the pension scheme. These regulations support that safety net.

These regulations will bring reassurance to members of defined-benefit occupational pension schemes, as well as to the pensions industry. All involved can be confident that nothing will change in practice with regard to the effects of the three judgments after 31 December 2023. I commend the regulations to the Committee and I beg to move.

My Lords, I thank the noble Viscount for his complete exposé of all the problems that have existed and how the Government are trying to rectify them. Our Benches agree with these SIs. There is no problem with them. I see other noble Lords have lots of notes; I know from experience that I can be brief knowing that they will deal with the minutiae. This seems to be more rules bringing old EU law into domestic legislation. These SIs raise broader points about discrimination in pensions, which is roughly the scope of the legislation. However, as usual, in bringing old EU laws into place we are missing the opportunity to make pledges to follow the Parliamentary and Health Service Ombudsman’s recommendations. It reports conversations with WASPI—Women Against State Pension Inequality—women. I would appreciate it if the noble Viscount could comment on how that is going to be dealt with.

Will the noble Viscount give the committee an update on the LEAP—legal entitlement and administrative practices—exercise through which the Government are doing a corrections exercise for historic errors and underpayments to women? I understand that these processes are taking place, but I do not know quite how far they have gone or how quickly they are going or when the majority of cases will be dealt with. I hope that the noble Viscount can put a bit of meat on that and give us some timeframe for LEAP and WASPI women, which are two issues close to my heart.

My Lords, I declare my interests set out in the register as a pension scheme trustee. I welcome these statutory instruments and thank the Minister for the clarity of his explanation of their history. The equal treatment by occupational pension scheme regulations before us maintain the protection of the right not to be discriminated against on the grounds of sexual orientation in relation to pension benefits, particularly survivor benefits, which would be lost on 31 December 2023 but for these regulations. That is a pretty compelling reason for welcoming them.

Those protections were originally secured through the EU framework directive for equal treatment and confirmed by our Supreme Court in the Walker case. They apply to occupational pension scheme benefits and to compensation to beneficiaries of pension schemes that enter the Pension Protection Fund.

My first thought was: gosh, the Government are taking things to the wire, time-wise, given that the House rises on 19 December. It does raise worrying concerns about what other pension protections for UK citizens, previously preserved by Section 4 of the European Union (Withdrawal) Act, will be lost because of a failure, whether by intent or neglect, to meet the 31 December 2023 deadline for changes to domestic legislation to be made for them to be retained. What level of confidence can the Minister give the House that all protections of pension benefits for members and beneficiaries preserved by Section 4 of the European Union (Withdrawal) Act are or will be captured in changes to domestic legislation prior to 31 December? Is it intended that some of those protections will not be preserved? If so, which are they?

These regulations also restate retained EU law on the right to equal pay between men and women where discrimination arises from the legislation on guaranteed minimum pensions by amendments to the Equality Act and the Pensions Act 2004, so the right continues to apply to occupational schemes and PPF payments. Very importantly—it is certainly close to my heart—the regulations retain the intent of the 2004 ECJ judgment of Allonby to nullify the requirement for a real-life opposite-sex comparator to demonstrate unequal treatment. Instead, a notional or statistical comparator can be used. That is such an important judgment and it demonstrates the value of the many ECJ judgments that contributed so importantly to progressing gender equality issues. As my noble friend was reflecting, so was I; I was actually a commissioner of the EOC, which supported the Allonby judgment at the time the ECJ pronounced its decision.

My Lords, I thank the Minister for a very helpful introduction to these orders and particularly for explaining the background to the court cases, which will make reading Hansard for this debate a bit more comprehensible than might otherwise have been the case. I also thank my noble friend Lady Drake, to whose comments I shall return, and the noble Lord, Lord Palmer of Childs Hill, whose confidence in my determination to expose the detail and minutiae I trust will not be disappointed.

All these regulations are a product of Brexit, the gift that keeps on giving. I shall start with the draft Pensions Act 2004 (Amendment) (Pension Protection Fund Compensation) Regulations 2023—the other way around from the Minister. As we have heard, it was prompted by two court decisions: the Hampshire court judgment, whereby the ECJ found that former employees should get at least half the value of their accrued pension benefits if their employer was insolvent before they hit pension age, and Hughes, when the High Court disapplied the cap on PPF compensation for those below normal pension age on the date of the employer’s insolvency.

These regulations amend the Pensions Act 2004 to ensure that affected scheme members receive at least the minimum level of protection due under the Hampshire judgment and remove reference to the PPF cap. Also, interestingly, they clarify how the Hampshire judgment is being implemented by providing a calculation of PPF compensation by reference to a one-off valuation, as approved by the Court of Appeal in Hughes.

As has been noted, action is needed because, under Section 4 of the European Union (Withdrawal) Act 2018, the principles of EU law will sunset at the end of this year and cease to have effect, including where the position has changed as a result of court cases, which is very relevant to us today. The purpose of these regulations is to ensure that the effects of the Hampshire and Hughes judgments will be preserved in domestic legislation. Could the Minister confirm for the record that nothing will change from the current position once these regulations take effect and the relevant EU retained law has sunsetted?

My Lords, I thank the three noble Lords who have spoken for their general support for these regulations. The noble Baroness, Lady Sherlock, was right when she alluded to there being an element of complexity but, if I may say so, all four of us have seen through that complexity. I appreciate the general support. Nevertheless, I am very aware that a number of questions were raised and, as ever, I will do my best to answer them, in no particular order.

The noble Lord, Lord Palmer of Childs Hill, asked about the WASPI. I understand exactly why he raised that. He will probably expect the only answer that I can give: we are not able to comment on the status of the WASPI at the moment because, as he will be aware, there is an ombudsman investigation ongoing. He has probably heard me say that in the Chamber before; I wish I could say something different, but I am afraid I cannot go any further.