The Brewster Case

by on 14·03·2017

The death of defined benefit death benefits?

When the success of Denise Brewster's appeal at the Supreme Court was announced this February I asked myself two questions; 'I wonder if the hold music at the Local Government Scheme in Northern Ireland is Beyonce's Single Ladies?' and 'what will be the long term effects of this case?'.  Whilst I am sure my colleagues think I am rather sad to be pondering this kind of thing, I am not the only person to be concerned as the House of Commons Library published a briefing paper on the subject shortly after the Brewster case concluded: http://researchbriefings.files.parliament.uk/documents/SN06348/SN06348.pdf

Whilst most of us no longer hold the same moral ideals about 'living in sin' as our grandparents did, it would seem that pension scheme Trustees have taken their time in adjusting to the modern world.  The Government first produced a Green Paper on the idea of extending pension death benefits to non-married cohabitees in 1998 but changes to many Schemes did not start to come into force until the mid-2000's and even then they were not applied retrospectively.  The changes to Public Sector Schemes were only introduced if members were prepared to pay for them, for example, the Civil Service Scheme more than doubled contribution rates from 1.5% to 3.5% of pay, and additional sections were introduced with members having to decide to move, in order to obtain the additional benefit.

There is little publicly available data on private sector schemes but the most recent figures suggest 83% do include the option of survivor's 'benefits' at the Trustees' discretion, but only 2% offer them as a right (source: ONS Occupational Pension Schemes Survey 2015).  Having completed an increasing amount of defined benefit scheme analysis in the last 12 months, I would suggest that survivor 'benefits' for those other than dependent children can sometimes include a pension, but more likely include a simple return of employee contributions.

Subsequent to the Brewster case do Private and Public Sector Schemes need to think again about what benefits they provide?  And do advisers need to consider more thoroughly the needs of any surviving partner?

The inclusion of a spouse's pension as part of a defined benefit scheme is a hangover from the day when husbands went out to work and wives stayed at home and looked after the family; most women would have reached pension age with no pension or savings of their own and were truly 'dependent'.  In this post-feminist world where both partners in a household are likely to work, to have to work in order to maintain a home and mortgage, if either one of them are lucky enough to be a member of a defined benefit scheme, should we still expect to receive (and pay for) any spouse's/dependant's pension?  Do most people who are members of such schemes even realise what benefits they have and make any kind of plan for their partner to rely on such a benefit in the event of their demise?

When dealing with death claims Private Sector Schemes will most likely have a simple procedure which involves checking if a nomination form was in place, but also asking for sight of a marriage/civil partnership certificate if one exists.  If the member was unmarried but had a 'dependent' partner then additional proof such as a Will and copies of joint mortgage statements etc. would be requested, but as the payment is often at the Trustees' discretion then it would be up to the survivor to make their case - that is if they even knew they had the option to.  The outcome of this court case may now mean that claims departments have to deal with more people making a claim on the basis they were financially interdependent on the deceased member; how much proof the Trustees require may also increase.

One of the many potential drivers for transferring out of a defined benefit pension scheme is the death benefits available.  For those clients who are single and show no signs of getting married then the provision of survivor benefits seem of little interest and a defined contribution scheme may be the better option.  However, for those clients who have a partner then additional questions need to be asked, i.e. does said partner have their own pension savings?  Do these include personal and or defined benefit schemes?  Would the partner be able to survive financially without the client's income now and in retirement?  Any resulting agreement from the client to leave the scheme on the adviser's recommendation would ideally be signed by both spouses to show that they understand what they are giving up. Where a client is unmarried but lives with a partner, then remaining in the scheme where death benefits could be negligible could be poor advice, but if their partner is truly financially dependent and has no pension savings of their own, then maybe the best advice is to 'put a ring on it'?