Your Money: The pink pension could be just around the corner

A better deal lies ahead for gays, unmarried partners and divorcees, says Jean Eaglesham
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Gays, divorcing women and unmarried couples had something to celebrate this week, care of two slightly surprising sources. Separate moves in Parliament and by the Inland Revenue should mean a better deal on pensions for these groups.

The rising tide of divorce (four in 10 marriages are now expected to end in this way) has focused attention on how divorced people often lose out on pensions, often a bigger asset than even the shared property. As it stands now, if you divorce you have no automatic right to a share of pension entitlements built up by your spouse.

But from next month the divorce courts can "earmark" part of a pension so that the former spouse is entitled to a share of the eventual benefits. This entitlement only kicks in when the pension is paid. If the pension holder dies before retiring, the ex-spouse may well get nothing.

However, the Family Law Bill passed by the House of Commons this week will allow what many commentators believe is a fairer solution, albeit one that may prove to be an administrative nightmare. The provisions will allow pension funds to be split at the time of divorce, though it is unlikely that this will come into effect before 1998.

Meanwhile, the Revenue has helped open the way for unmarried people, whether straight or gay, to receive survivors' benefits, the (reduced) pension that almost all company schemes pay to widows and widowers after their partner dies. While some schemes, including British Telecom, British Gas and Unilever, already pay survivors' benefits to unmarried partners, they are in the minority. Just 4 per cent of schemes pay such benefits as a matter of course, according to a survey published earlier this year by the National Association of Pension Funds (NAPF). The public-sector schemes are particularly strict.

But in spite of the lack of this valuable benefit, married and unmarried scheme members still have to pay the same pension contributions. "Gay and unmarried men and women are being forced to cross-subsidise wedlock. It's simply unfair," says Ivan Massow, an independent financial adviser who specialises in gay clients.

One sticking point has been the Revenue's requirement that schemes can only pay benefits to people who are dependent on the employee. The Revenue has now expanded its definition of what constitutes "dependent" to include "an unmarried partner, of the same or opposite sex" who is "financially interdependent on the employee, eg where the partner relied on a second income to maintain a standard of living". Peter Murray, of Unilever, who chairs NAPF's benefits committee, says: "I anticipate that many schemes will now introduce such a benefit [for unmarried people]." However, the decision to allow the extension will still be down to the trustees of individual schemes.

The Revenue's "clarification" could also help gay and unmarried people with personal pensions. Most of the lump sum in such pension funds has to be used to buy an annuity, which pays an income for life. Married couples usually opt for a joint-life annuity, which pays the widow or widower a (reduced) income after the annuity holder dies. As with company schemes, however, this option is limited to dependent partners. Most insurers have previously interpreted this as ruling out unmarried couples.

But while the Revenue ruling will help gay and unmarried people achieve equal pension rights, it will not ensure that they do. Not all schemes will necessarily change their rules, and some of the biggest public-sector schemes, which were set up by statute, are unable to change their rules without legislation.

Hugh Brown, of ICI, who sits on the CBI Pension Panel, says: "Schemes will reflect on their rules but I don't know that there will be a flood of changes." Angela Mason of Stonewall, which campaigns for lesbian and gay rights, notes: "It is still open to scheme trustees to simply say: 'We don't like lesbians and gays' and deny them survivors' benefits."

Another problem stemming from the legislation's lack of equality towards lesbians and gays lies in the lump sum paid by a pension fund if the employee dies before retiring. This sum is paid at the discretion of the trustees or (in the case of personal pensions) the insurer; and while an employee can normally nominate whomsoever he or she wishes to receive this benefit, there is no legal requirement for this to be honoured.

Mr Massow says he is sure there are cases where insurers and trustees have decided to pay the lump sum to a "legitimate" beneficiary, such as a parent, rather than a gay partner. What is more, he points out that many company schemes ask employees to state their relationship to the chosen beneficiary and says he has even come across cases where people have been sacked shortly after declaring as a partner someone of the same sex.