The Court of Appeal is set to decide whether a judgment allowing schemes to restrict survivor benefits for civil partners and same-sex spouses is compatible with EU law.
In the 2014 case of Walker v Innospec, the Employment Appeal Tribunal (EAT) ruled that schemes should not be obliged to fully equalise survivor benefits under an exemption laid out in the Equality Act 2010.
Human rights organisation Liberty originally took the chemical manufacturer to an employment tribunal on behalf of Innospec scheme member John Walker, and successfully argued that employers relying on the exemption were discriminating against gay and lesbian members.
Walker has been a member of the scheme since 1980 and entered into a civil partnership in 2006.
Under the current scheme rules, his partner would receive just £500 per year in the event of his death, but the benefits would be worth an annual £41,000 if he had married a woman on the same date.
According to the EAT, forcing schemes to equalise would have required it to "legislate rather than interpret" the exemption as incompatible with the EU's Equal Treatment Directive.
The Court of Appeal is due to rule on the issue this week, with lawyers saying there could be huge consequences for schemes depending on the way their rules are written.
Estimates from the Department for Work and Pensions (DWP) suggested the cost of removing the differences in survivor benefits between surviving opposite-sex spouses, same-sex spouses and civil partners, in private sector schemes would be about £400m.
The capitalised costs of removing the differences across both public and private sector schemes would be around £3.3bn however.
Norton Rose Fulbright senior knowledge lawyer Lesley Harrold said: "If the Court of Appeal agrees with the original employment tribunal question, then the government is going to have to revisit that exemption in the Equality Act and I think they would have to legislate further.
"But even if the appeal is heard this week, there's no guarantee that we'll actually get the judgment this year. With summer holidays and things, they can take several months to come out. We could still be left in limbo for a little bit longer.
"There are quite a few schemes I understand that have simplified their own administration by saying that civil partners and same-sex spouses will be given the same benefits for all their service - including that before December 2005 - as heterosexual couples just to simplify their own processes.
"They may not actually have that many people to whom it applies so the costs could be not too substantial depending on the scheme."
A spokesman for DWP added: "It is right all workers are now treated equally and survivor benefits are built up on an equal basis.
"But full equalisation would cost around £3.3bn and the implications for pension schemes are complex.
"We must consider the full impact of this issue before considering changes to legislation."
Trades Union Congress (TUC) secretary general Frances O'Grady has said equalising survivor benefits would, in many cases, be of minimal cost to a scheme but would make a huge difference to same-sex couples and civil partners.
The Pensions Regulator (TPR) has substantially increased the usage of its powers against trustees – posting a sharp rise in the use of formal information gathering powers and High Court production orders during the three months to the end of September....
The Pension Schemes Bill has completed its third reading, crossing its latest hurdle in the House of Commons.
An amendment to the Pensions Schemes Bill which would have seen people given a pre-booked Pension Wise appointment ahead of accessing their retirement savings has been defeated.
A proposal to ensure savers receive a Pension Wise appointment prior to accessing their retirement pot has received cross-party support in parliament, while Labour seeks net-zero pensions by 2050.
Pension scams are not just about the money lost, but the lives devastated, says Nicola Parish, so the industry must unite to defeat this scourge.