A decision of the European Court of Justice (ECJ) in Test-Achats (March 2011) in relation to gender discrimination will fundamentally affect the way insurance and pension premiums are calculated throughout the EU, and this will particularly affect insurers and pension schemes in Ireland, the UK and the Netherlands.
One of the fundamental principles of EU law is that men and women must be treated equally. A Directive in 2004 gives substance to this principle of equal treatment in relation to the supply of goods and services. However, Article 5(2) of the Directive permits Member States to derogate from this principle in circumstances where the use of gender as a determining factor is supported by reliable, up-to-date and publicly available actuarial and statistical evidence. This exemption was availed of by Ireland, where insurance companies have traditionally used differential pricing for men and women, based on statistical evidence of the risk factors involved for insuring each gender. The ECJ ruled that this exemption was invalid, as insurers in Member States which had availed of the exemption were permitted to apply unequal treatment without any specified cut off period, leaving open the possibility that this inequality could continue indefinitely. Thus, the exemption was held to contravene the European Charter of Fundamental Rights, one of whose objectives is to provide equal treatment for men and women across all Member States. However, the ECJ acknowledged that since the use of gender actuarial calculations are widespread within various financial services sectors, its decision would not come into effect until 21 December 2012.
Although the ECJ decision does not involve pensions directly, as it was predominately an insurance issue, nonetheless this decision is likely to have significant implications for the pensions industry. There is another EU Directive concerning the regulation of pensions, which contains a similar exemption to that in the Directive above. Thus, based on the reasoning of the Court in Test-Achats, it seems likely that this exemption for pensions will also fall at some point in the future. In this event pension annuities are likely to become more expensive to purchase, as unisex premiums may be higher than their respective male and female premiums. However, since the impact of the ECJ decision in Test-Achats only comes into effect on 21 December 2012, further case law on the subject may be required in order to clarify matters for the pensions industry.
Contributed by Michael Wolfe .
