In Test Achats, the EU Court of Justice ruled that Article 5(2) of the Gender Directive is invalid with effect from 21 December 2012. This Article permitted insurers to include gender as a risk factor in calculating insurance premiums or benefits payable by or to individuals. 

Article 3(4) of the Gender Directive provides that the Directive does not apply to matters of employment and occupation.  Furthermore, Recital 15 of the preamble states that the Directive should apply only to insurance and pensions which are “private, voluntary and separate from the employment relationship”. 

Comment

The following points are worth noting as regards the application of Test Achats to pensions and annuities:

• The Equal Treatment Directive, which provides for the equal treatment of men and women in relation to occupational pensions, permits the setting of different levels of benefits between men and women when justified by actuarial calculations. The Irish Pensions Act also permits the use of sex-based actuarial factors to be used when determining the amount or value of benefits.
• The European Commission has issued guidelines which draw a distinction between the Gender Directive (which covers insurance and pensions which are private, voluntary and separate from the employment relationship) and the Equal Treatment Directive (which covers the equal treatment of men and women in relation to occupational pensions).
• New Irish legislation has been enacted which provides for an amendment to the Equal Status Act 2000 to give effect to the Test Achats decision. It is noteworthy that the explanatory memorandum to the Bill on which the Act is based stated that “the Court decision – and this Bill – does not apply to employment and occupational pensions”.
• While it seems clear that Test Achats has no direct impact on defined benefit (DB) schemes (i.e. a promised DB pension will be the same for a man or woman), there is a level of uncertainty regarding the effect of the European Court judgment on defined contribution (DC) schemes where annuities are bought from an individual’s DC retirement fund if the amount of the pension received depends on gender or could be affected by gender discrimination. Where there is an effect on DC schemes, annuities purchased either in the name of the trustees (i.e. whereby all payments are made by the insurance company to the scheme, albeit that the benefit is then passed on to the member) or in the name of a member (i.e. whereby the benefit is provided by the insurance company directly to the member) may now have to be priced on gender neutral terms. Mixed views have been expressed by insurance companies regarding the application of the Test Achats decision to pension annuities and it would appear that not all companies are adopting the same approach. This could give rise to a greater variation in the cost of annuities on offer from insurance companies.
• Test Achats has a direct impact on pensions that are private, voluntary and separate from the employment relationship, such as Approved Retirement Funds (ARFs) and Personal Retirement Bonds (PRBs).

Contributed by Lorna Osborne & Mary Greaney