Recent EU gender equality case and its significant impact on pension schemes

3 March 2011

Summary
The European Court of Justice ("ECJ") has concluded in the Association Belge des Consommateurs Test-Achats ASBL ("Test-Achats") and Others -v- Conseil des Ministres 2011 that it is a breach of European Union ("EU") law to take the sex of the insured person into account as a risk factor in the formulation in insurance contracts, such as annuities. This decision cannot be appealed and under the transitional rules companies offering annuities will need to change their practices so that gender equality is achieved by 21 December 2012

Facts of case
Test-Achats challenged the higher life-insurance premiums charged to male members of their organisation, arguing that it was discriminatory under EU law. The claimant stated that women paid lower premiums because the actuarial factors showed that they lived longer and were less of a risk for life insurance, as a consequence.

Directive 2004/113 allows EU countries to derogate or permit by means of domestic legislation, differences related to sex in respect of insurance premiums and benefits, if sex is a determining risk factor and that can be substantiated by relevant and accurate actuarial plus statistical data. Most EU Member States made use of this power to derogate in respect of one or more types of insurance which includes insurance companies offering annuities.

Test-Achats successfully challenged the legality of this derogation. In support of its case, Test-Achats stated that under Article 8 of the Treaty on the Functioning of the European Union ("TFEU"), the European Union is to aim, in all its activities, to eliminate inequalities and to promote equality between men and women. Article 5 of EU Directive 2004/113, which is entitled ‘Actuarial factors’, provides:

"... the use of sex as a factor in the calculation of premiums and benefits for the purposes of insurance and related financial services shall not result in differences in individuals’ premiums and benefits."

Judgment
The ECJ judgment stated that the derogation allowed under EU law was unlawful:

"A provision which thus enables the Member States in question to maintain without temporal limitation an exemption from the rule of unisex premiums and benefits works against the achievement of the objective of equal treatment between men and women and must be considered to be invalid upon the expiry of an appropriate transitional period."

The judgment also ruled that in the insurance services sector, the derogation from the general rule of unisex premiums and benefits is invalid with effect from 21 December 2012.

Further impact on pension schemes
The additional costs that pension schemes will have to pay when buying annuities for retiring members is an obvious impact of this case. But does the case have a wider impact?

Some lawyers have suggested that a new "Barber Window" for equalised actuarial factors from 1st March 2011 has been opened. However, this ignores the transitional rules contained within the judgment that will allow insurance companies until 21 December 2012 to change their practices.

Others claim that the effect of the judgment is that it will mean that gender neutral factors for commutation factors in pension lump sums, early and late retirement factors as well as CETV ("Cash Equivalent Transfer Values") will have to be introduced by the end of 2012.

We will be providing a more detailed analysis of the judgment in due course.