Legal win could alter the finances of millions

A landmark legal case looks set to overturn the way millions of unmarried couples’ finances are treated.

No ring, no benefit: Could financial discrimination against unmarried couples finally be on the way out? (Pete Karici)

Christmas 2009 must have been a life-changing one for Denise Brewster, a lifeguard from Coleraine, Northern Ireland.

Having become engaged to her partner of more than 10 years on Christmas Eve, by the early hours of Boxing Day he had suddenly died, aged only 43.

It’s difficult to imagine how that must have felt but as with all bereavements, very quickly the financial realities and implications of a loss must also be addressed. And that’s where a battle began that ended this week in a critical ruling by the Supreme Court that could affect millions of Britons.

Ms Brewster’s partner had been employed for 15 years by Northern Ireland’s Translink and had been paying into the local government pension scheme. Most pension schemes include a clause that provides a pay out to a partner in the event that the policyholder dies before they begin to draw their pension.

It can be worth up to 50 per cent of the income, depending on the policy and is termed a survivor’s pension. It is automatically applied in the case of a marriage or civil partnership for both public and private pensions, and typically by private pension schemes for unmarried couples.

In the case of unmarried partners in public schemes however, the provision has been reliant on the policyholder filling in a straightforward forward nominating the recipient. In Ms Brewster’s case, that hadn’t been done and she was refused the benefit. That’s despite being able to demonstrate a long-term personal and financial partnership with her deceased fiance. (They owned a property together, for example.)

Her lawyers argued that the requirement of such a form was disproportionate in its effects, amounting to discrimination. They argued that it breached no less than a 2009 article in the European Convention on Human Rights, protecting a person’s rights to property and the peaceful enjoyment of possessions.

The judges of the Supreme Court unanimously agreed, declaring that the point of the 2009 regulations “must have been to remove the difference in treatment between a longstanding cohabitant and a married or civil partner of a scheme member”

“This is a very welcome ruling,” added former pensions minister and Director of Policy at Royal London, Steve Webb.

“It is totally unacceptable for cohabiting couples to be treated as second class citizens. With more than six million people living together as couples and the numbers rising every year, this is an issue that needs to be addressed as a matter of urgency. We need pension scheme rules which reflect the world we live in today, and not the world of fifty years ago”.

But such treatment of unmarried couples doesn’t end there and with the ruling expected to clean up the remnants of outdated policies when it comes to public pensions, the knock-on effects could be dramatic.

“What is particularly interesting about this case is whether it will spark fresh legal challenges in other areas of perceived discrimination against cohabiting couples, including inheritance tax and capital gains tax,” says Nicola Waldman, private client partner at law firm Hodge Jones & Allen, noting that, in this judgment, the Supreme Court has said that it was the duty of the state to secure Ms Brewster’s right to equal treatment under Article 14 of European Convention of Human Rights rather than setting out a requirement that this right must simply be respected.

"If the state must be proactive in promoting equal treatment, then we could see this argument used in relation to the tax regime. Our inheritance tax laws for example, allow married couples and civil partners an exemption from tax altogether whilst cohabiting couples are only exempt up to £325,000, impacting many who own property together.

“Similarly, there are capital gains tax benefits where spouses and civil partners can transfer assets to each other at no loss or no gain – this is not possible for co-habiting partners. It is feasible that cohabitees could now argue that these differences amount to discrimination, with huge implications for the tax regime in this country.”

For more impartial information about pension schemes and your rights as the partner or dependent of a deceased policyholder, go to The Pensions Advisory Service.