My Lords, I must first say to my noble friend Lord Elton that I am in charge of many things at the moment, but one thing I am not in charge of is flooding. I would rather not add that to my portfolio for now. Before I respond in detail to the debate, I need to make a correction to the figures previously used by the Government in debates on this issue, about the number of schemes using the Equality Act exception relating to civil partners. The Government had stated that two-thirds of private occupational pension schemes already go further than the 2005
exception. This is incorrect. The correct figure is one-third. However, this does not change the estimated £18 million increase in liabilities that would arise from removing this exception, as that was already based on one-third of schemes.
The pensions system as a whole is full of differences in treatment as a result of changes in society and social attitudes. Such changes are introduced prospectively, so as not to place new unfunded burdens on pension schemes which could not have been taken into consideration in their funding assumptions. The current Equality Act exception, which this Bill also applies to people in same-sex marriages, recognises that pension outcomes in the present always reflect different accruals in the past, and that changes should be forward looking, rather than be retrospective.
Governments of all parties have sought to equalise pensions over time. What they have not done is try to equalise pension outcomes in the present, thereby breaking the link between past accruals and present outcomes. The standard approach is based on the principle that it is not right to impose costs on schemes, meaning they would have to pay out new amounts that were not promised in the past, whatever the exact scale of those costs.
Avoiding imposing retrospective costs on pension schemes is the standard principled approach which has been taken by successive Governments. That is the approach the previous Government took when civil partnerships were introduced in 2005, and when they brought forward the Equality Act in 2010. That is the approach we have taken in this Bill, by aligning the pension position of same-sex married couples with that of civil partners.
This approach means that pension schemes take time to catch up with societal changes, but over time the anomalies reduce and eventually disappear. Making any change to the position set out in the Bill would mean placing retrospective costs on the schemes. The Government understand that the current position is not perfect, but it is based on the principle that we should not seek to impose retrospective costs on private pension schemes—costs that were not planned for when benefits were being accrued.
The noble Lord, Lord Alli, seemed to try to dismiss the arguments that I was going to put forward before I had even had the opportunity to do so, but the Government’s case is quite clear. It is a strong one and I shall go through it properly. The two amendments in this group have different effects, as we have already established. Amendment 84, moved by the noble Lord, Lord Alli, would mean employers having to pay survivor benefits to civil partners in respect of their deceased spouse’s service prior to 2005, when civil partnerships first became possible. This amendment does not meet what I believe the noble Lord is trying to achieve, which is to give parity in provision of survivor benefits between same-sex married couples and opposite-sex married couples.
As well as going against the standard principled approach of avoiding imposing retrospective unfunded burdens, removing the current exception in the Equality Act would potentially lead to a much wider range of discrimination claims against pension schemes. There
would be a significant risk of a domino effect, leading to full equalisation of survivor benefits at a significant cost to schemes and the taxpayer. The noble Lord, Lord Alli, said that no public money would be required to make this change. I disagree.
In addition to its impact on private sector schemes, the amendment would also impose a direct cost on public service schemes which would, at least, have to pay survivor benefits to surviving female civil partners based on pre-1988 service. This is because if the amendment were passed, not paying benefits to surviving female civil partners based on pre-1988 service would be discrimination on the basis of sexual orientation. To remove any such discrimination, public sector schemes would have to equalise pension benefits for surviving female civil partners and same-six married couples with those for widows which are based on accruals from 1978. At the moment, benefits for those female survivors are currently based on accruals from 1988. Therefore, there is an immediate cost to the taxpayer.
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The amendment would remove statutory provisions that mean it is not discriminatory for occupational schemes to pay survivor benefits only to civil partners based on the service of a deceased partner since 2005. It would also remove the provision in the Bill that extends this exception to same-sex married couples. If the intention is not to alter the existing arrangements that apply to civil partners but instead ensure there is no discrimination between same-sex married people and opposite-sex married people, Amendment 84 will not achieve that. It would impact immediately on those occupational schemes that currently make no provision for civil partners based on service prior to 2005. An alternative approach—which may be what the noble Lord, Lord Alli, would like to achieve—would be to equalise the position of same-sex married couples with that of opposite-sex married couples. However, there is significant uncertainty as to whether a change of that kind would in fact have that result, given that the Government would need to consider carefully whether different treatment of civil partners and married same-sex couples in this regard would be capable of justification.
Further, instances of inequality between men and women run through the pensions system because—as I have explained—rights built up in the past reflect the different social attitudes of those times. This means there are pre-existing differences in treatment between men and women. These differences mean that any change short of full equalisation would deliver only partial equalisation; anything less could lead to new gender discrimination arising in the schemes. Removal of the current exception in the Equality Act would potentially lead to a much wider range of discrimination claims against pension schemes. As I said, there would be a significant risk of a domino effect leading to full equalisation between widows and widowers across the public service schemes, at a significant cost to the taxpayer. We do not know for certain what the full costs of that domino effect would be but in 2011 the Government Actuary’s Department estimated the cost of equalising survivor benefits for widows and widowers in the public service schemes at between £3 billion and
£4 billion. That gives an idea of the potential costs to the taxpayer of full equalisation. It also indicates why Governments—including the Government of the noble Baroness, Lady Royall—have avoided imposing retrospective changes on schemes.
While I understand the concern that as regards pension benefits same-sex married couples will be placed in a different position from opposite-sex married couples, this demonstrates the need to consider very carefully whether any departure from the established approach is appropriate and what the costs and legal implications of any change would be. It would be irresponsible of any Government to commit themselves to potentially imposing significant costs on businesses and the taxpayer without undertaking an assessment of the full scale of those costs. While it has taken me quite some time to read this out, and it is very much the Government’s position, just the fact that it is very complicated and hard to understand justifies me in saying that this is not easy to solve in one fell swoop.