By Fiona Tait, Pensions Specialist, Royal London
The scheme rules clearly permitted the payment of survivor’s pension to a cohabiting partner, however there was an additional eligibility condition which a spouse or civil partner did not need to meet.
This condition was the submission of a nomination form signed by both parties confirming that the pension should be paid to the cohabiting partner. Ms Brewster and her fiancé had not completed this form.
Discrimination
An occupational arrangement the scheme need not offer the same benefits to everyone, however the rules must not discriminate against particular groups in the payment of those that they do offer. The question here was whether the requirement for a signed nomination form from the member was a reasonable administrative requirement or discrimination against unmarried couples.
From the trustees’ point of view, a nomination form is normally a clear and simple way to ensure that they are aware of the member’s wishes, but in this case it was more than that. A pension for a spouse can potentially be payable for a very long time and the trustees clearly need to be sure they only undertake this expense for a genuine partner.
Financial dependency
It is relevant that the benefit in question was a pension rather than a lump sum. On the death of a member within a final salary pension scheme, the scheme may pay a pension to a surviving spouse, civil partner or other dependent adult, as well as any children until they reach the relevant cut off age. As a result these schemes, including those of the Northern Ireland Local Government Officers’ Superannuation Committee scheme, may well require proof of financial dependency or interdependency for payment of some benefits.
Ms Brewster and Mr McMullen had been cohabitees for over 10 years and were joint owners of the property they lived in therefore Ms Brewster met the normal criteria for financial interdependence.
The decision
The judgment of the Supreme Court was that as the trustees already had proof of financial interdependency the additional requirement for a nomination form could not be justified.
Pensions in the 21st century
There is no doubt that cohabitation is a very common part of modern life, and most pension schemes should recognise this. Following the case, many commentators have expressed the view that long term cohabitees should be treated no differently than those in a marriage or a civil partnership.
At the other extreme I have seen a suggestion that pensions for spouse’s should be dropped entirely and that every individual should build up their own entitlement. This is of course what has happened with the new State Pension, however there is a fundamental difference in the way in which entitlements are built up. The State Pension does not rely on voluntary contributions and there is specific provision for carers and those with family responsibilities.
We live in a society where having children often means one partner has to agree to undertake responsibility for their care.
So long as people are ‘out of’ the pension system, even if only temporarily, then spouse’s pensions in some form will continue to be required.
The benefits of a nomination form
Lump sum death benefits have never been restricted to dependents and in this situation the nomination form is not a pre-condition of eligibility, it is an expression of the member’s wishes which help the trustees to decide who should receive the payment(s).
The payment is of course subject to trustee discretion and there are instances where the trustees will not follow the member’s expression of wish as they believe that the benefit is more appropriately paid to someone else. That may happen, in particular where family circumstances are fairly complicated, for example where there has been more than one marriage and/or children from different partners. In some circumstances members may decide to give a direction, i.e. an instruction to the trustee with, for example, a separate, personal trust as the beneficiary rather than discretionary disposal by the scheme trustee. In the majority of cases however trustee discretion is preferable as it allows the payment to be made outside the deceased’s estate .
And so there is no confusion…
One thing is clear, whether or not it is a scheme condition for payment, it makes sense for all members to complete a nomination form in relation to the payment of death benefits, and to ensure it is regularly reviewed and updated when required. It is then much more likely that the Trustees will have a proper insight into the member’s wishes. In this case, had Mr McMullen and Ms Brewster completed the form, the scheme would have paid the pension - assuming of course they had the right envelope!
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