Sex-equal actuarial factors

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02 March 2011

Sex-equal factors

Insurers must stop pricing their products according to the sex of the purchaser. This includes pension products.

This is the game-changing effect of today's decision by the European Court of Justice (ECJ) in the Test-Achats case.

The prohibition on sex-based factors comes into effect on 21 December 2012. This leaves a transitional period of just under two years for insurers to reconsider their products.

The ECJ's decision is final; there is no right of appeal.

Occupational pension schemes 

This is not a decision about occupational pension schemes and the court recognised that the employment context could make a difference. However, we think the court's reasoning could apply equally to pension schemes and that they too are likely to have to stop using sex-based factors.

The basis of the ECJ's decision was not narrow regulatory considerations but the fact that EU law now has human rights, including equality, as a fundamental principle guiding its application. Today sex-based factors in pension schemes rely on exceptions in domestic law that are based on the sex discrimination cases in the ECJ in the early 1990s.  These held that the principle of equal pay did not catch sex-based factors but, after today's decision, there must be considerable doubt whether a case would go the same way now. 

Sex-equal factors would affect things like commutation rates, early and late retirement adjustments and transfer values. 

Occupational pension schemes will see the effect of today's decision whenever they buy an insurance product, like a bulk buy-out or buy-in policy. Individual members of DC schemes will see the effect in the size of the annuity they can buy.

Full implications 

It will take some time for insurers and pension schemes to assess the full implications. Parliament and the courts will also be involved in working them out because domestic legislation, including the new Equality Act 2010, will need to be brought into line with the ECJ's decision. DB schemes should begin to discuss the potential impact with their actuaries.

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