Gender based actuarial factors - what now for pension schemes?
The ECJ decision
The European Court of Justice has today decided that a provision in a Directive allowing gender based insurance premiums is contrary to the general principle of equal treatment for men and women.
The provision in the Goods and Services Directive which currently permits gender based premiums will be invalid from 21 December 2012.
So what does this mean for pensions?
This case did not deal with occupational pension schemes, although it is expected to have a direct impact on the cost of annuities offered by insurance companies in the future.
However, pension schemes will need to consider the implications of this judgment.
Pay and pensions are dealt with in the Equal Pay Directive. This Directive specifically prohibits sex discrimination in occupational pension schemes. However, like the Goods and Services Directive in the case, the use of sex based actuarial factors is permitted in certain circumstances. In addition, the ECJ has previously held in cases concerning UK pension schemes (Neath v Hugh Steeper and Coloroll) that the "use of actuarial factors differing according to sex in funded defined-benefit occupational pension schemes does not fall within the scope of [the equal pay provisions] of the EEC Treaty."
The Advocate General‘s opinion (which provided guidance to the court) in Test Achats addressed the previous pensions cases. She observed that they related to the application of the principle of equal pay, but did not "comment on the compatibility of that factor with the prohibition of discrimination on grounds of sex under European Union law". The point is not specifically dealt with in today’s judgment but the decision relies on general provisions in the EU treaties relating to obligations to secure equal treatment. As a result, the older cases may not protect occupational pension schemes in the future.
In relation to the provisions in the Equal Pay Directive, it is difficult to see why it should be treated differently to the Directive considered in Test Achats. Nevertheless, neither the Equal Pay Directive nor the decided pension cases were referred to in the judgment and the ECJ did not express its decision in wide terms, but limited it to the validity of the derogation in the Goods and Services Directive.
Occupational pension schemes use gender based actuarial factors in a variety of areas:
- early and late retirement factors
- calculation of transfer values
- commutation of benefits
- purchasing a scheme pension with a money purchase pot (e.g. added years from AVCs)
All schemes need to look at the factors they use and consider the extent to which this judgment may impact on them.
For more information see: Association Belge des Consommateurs Test-Achats and Others (Case C-236/-9)