Righting discriminatory pension schemes: Does the EU “future effects” or “no retrospectivity” principle win?


Claire McCann considers the Court of Appeal judgment in O’Brien v Ministry of Justice and Walker v Innospec & Ors, which deals with the question of whether rights under the EU Part-time Workers Directive and the Framework Directive can be retrospective in the complex area of entitlement to pensions.

In these joint cases, the Court of Appeal concluded that entitlement to a pension accrues and becomes fixed during the period of employment, and not at the point of retirement and/or payment.  Therefore, any less favourable treatment in relation to pension entitlement or entitlement to a survivor’s pension (in O’Brien, as between part-time and full-time judges; and in Walker as between married men or women and those in a civil partnership and/or as between employees married to a member of the opposite sex and those in same sex marriages) will not be unlawful under EU law unless that entitlement has accrued or will accrue after the date by which the relevant EU Directive was required to be transposed into domestic law.

In O’Brien (the less complex case of the two joined cases), a part-time judge sought to back-date his entitlement to a pension to 1 March 1978 when he was first appointed as a part-time judge.  He retired as a part-time judge on 31 March 2005.  The UK was required to transpose the Part-time Workers Directive by 7 April 2000.  The Ministry of Justice, therefore, argued that Mr O’Brien was only entitled to a pension calculated from that date.

In Walker, the Court considered the case of Mr Walker, who had worked for Innospec Ltd from January 1980 until his retirement on 31 March 2003.  The rules of the company’s pension scheme provided that a surviving spouse of a member of the pension scheme would be entitled to a pension for life if the member died on or after 1 December 1999.  The Framework Directive established a general framework for combating discrimination on several grounds, including sexual orientation and had to be transposed into domestic law by 2 December 2003.  The Civil Partnership Act 2004 came into force on 5 December 2005 and Mr Walker and his partner registered a civil partnership on 23 January 2006 and they have since married.  The question on appeal was whether the pension fund will be required to pay a surviving spouse’s pension to his husband in the event that his husband outlives him, even though Mr Walker had retired before sexual orientation discrimination was prohibited (or was required to be prohibited) in UK law and before the entry into force of the Civil Partnership Act 2004.  In other words, at the point of Mr Walker’s retirement on 31 March 2003, it would not have been unlawful to deny a survivor’s pension to a same sex partner.

In both cases, it was argued that the less favourable treatment only occurred at the point of retirement and/or payment of the pension in question.  It was also argued that, in respect of pension entitlement, the two relevant EU Directives applied to the “future effects” of a situation which arose before the Directives had to be transposed into domestic law.  This is termed the “future effects principle” and depends on what is meant by “a situation which arose” under the law as it stood before it was amended in order to transpose the EU Directives.

The Court of Appeal disagreed with the arguments made on behalf of Mr O’Brien and Mr Walker, concluding that the CJEU had already clearly determined this issue in the case of Ten Oever [1995] ICR 74 when it held that the extent of pension rights has to be determined by reference to the EU law which applied at the time of the period of service on the basis of which those rights were acquired. 

In Mr O’Brien’s case, before 7 April 2000, he acquired no entitlement to a pension as a part-time worker and, as the Court of Appeal held, he could not do so retroactively.  In Mr Walker’s case, the Court concluded that his entitlement to pension benefits was part of his pay and was earned incrementally during his period of service.  At the time when he earned that entitlement, the discriminatory treatment in respect of survivor’s pensions was not unlawful.  The “future effects” principle could not assist Mr Walker because his entitlement to pension was definitively established during the period of his service and had become permanently fixed at the point of his retirement.  As this was before 2 December 2003 when the Framework Directive had to be transposed into UK law and before 5 December 2005 (when the Civil Partnership Act 2004 came into force), Mr Walker had acquired no entitlement to a survivor’s pension on behalf of his partner (later to become his civil partner and then his husband).

The additional hurdle for Mr Walker was that Schedule 9, paragraph 18(1) and (1A) of the Equality Act 2010 is clear in its intention to preclude claims such as his.  This is because, on its unambiguous wording, the legislation provides that there can be no unlawful sexual orientation discrimination where a person is prevented or restricted from accessing a benefit which is payable in respect of periods of service before the Civil Partnership Act 2004 came into force and where the inability to access the benefit is because the individual is not married to a member of the opposite sex. 

The Court concluded that paragraph 18 of Schedule 9 of the 2010 Act is not incompatible with the Framework Directive, because that Directive did not confer retroactive rights.  The Court, however, went further and observed that, even if it had concluded that the legislation was incompatible with the Directive, this would not compel an alternative interpretation (under the “Marleasing” principle).  The Court stated that “it is true that the national court must, if it can, interpret a national law so as to conform with a European Directive.  But that power and duty does not enable a national court to trespass into the field of law-making which is the task of Parliament and not the court”.  One might observe wryly here that this did not prevent tribunals and courts from trespassing into the area of law-making in connection with holiday pay when parts of the Employment Rights Act 1996 and the Working Time Regulations 1998 have been rewritten to give effect to the Working time Directive!

The Future Effects Principle is very rarely applied in UK law and the Court of Appeal found it difficult to weigh up against the far better known principle against retrospectivity.   This test case will no doubt impact upon the way in which the question of primary time limits is approached in the part-time judges’ litigation.   The Court of Appeal relied a great deal on CJEU jurisprudence as to pension entitlements being permanently fixed during an employee’s service although the CJEU, in that jurisprudence, did not consider the application of the “future effects principle”.  For long serving judges, the judgment is a particularly bitter pill.

In Mr Walker’s case, one can sympathise with his observation that if he were even now to marry a woman, she would benefit from a survivor’s pension whilst his partner and husband of many years will not and that just looks like less favourable treatment because of sexual orientation.

It is understood that permission to appeal to the Supreme Court will be sought in both cases.

Robin Allen QC and Rachel Crasnow QC were instructed by Browne Jacobsen LLP on behalf of Mr O’Brien.