What did the ECJ decide?

The European Court of Justice (ECJ) gave its ruling in the Test-Achats case on 1 March. The case concerned the practice within the insurance industry of using different actuarial factors for men and women when calculating premiums and benefits.

The Gender Directive (2004/113/EC) provides a framework for combating discrimination on the grounds of sex in the provision of goods and services. It contains a specific exemption for certain Member States which permits proportionate differences in individuals' insurance premiums and benefits where the use of sex is a determining factor in the assessment of risk based on relevant and accurate actuarial and statistical data.

The ECJ was asked to determine whether this exemption was in fact invalid, on the basis that it was contrary to the principle of equal treatment for men and women under EU law. The ECJ ruled that the exemption was invalid with effect from 21 December 2012 (thereby giving the insurance industry some time to adjust to the change).

What impact does the ECJ decision have on pension schemes?

The Test-Achats case was concerned with the Gender Directive. The Gender Directive states that it applies to private insurance and does not apply to the field of employment and occupation. The removal of an exemption within the Gender Directive does not therefore directly impact on pension schemes in general or the use of actuarial factors in particular. The ECJ judgment did not refer to the Equal Treatment Directive or European case law on actuarial factors. However, as the judgment was based on the premiss that equal treatment for men and women is enshrined as a fundamental right in EU law, there are grounds for believing that it could be extended to pension schemes.


The ECJ judgment means that annuities bought by members with their defined contribution pension scheme 'pot' will in future have to be based on unisex factors. Depending on the reaction of the insurance industry this could mean that, for a given pension pot in a defined contribution or personal pension scheme a male member receives a reduced annuity payment whereas a female member receives an enhanced annuity payment.

The judgment does not deal with benefits payable from defined benefit schemes but where members' benefits are bought out from those schemes in their own names the judgment could also have an impact. Passages in the Advocate General's opinion (which preceded the ECJ judgement) suggest that this non-discrimination principle should also be relevant when trustees arrange a buy-in policy, even though the policy is in their own names and not that of the members.

It is unclear from the ECJ judgment whether annuities which have already been bought need to be reviewed. It appears that the judgment is not intended to be retrospective and therefore only applies to annuity contracts issued from 21 December 2012 onwards.

Actuarial factors

Actuarial factors are used by pension schemes in the following areas:

  • commutation;
  • transfer values; and
  • early and late retirement.

European case law has previously established that the use of sex-based actuarial factors in funded defined benefit occupational pension schemes does not fall within Article 119 of the EEC Treaty (now Article 157 of the Treaty on the Functioning of the EU), which sets out the principle of equal pay for male and female workers. The Equal Treatment Directive, which prohibits occupational pension schemes from discriminating on the grounds of sex, provides an exemption in relation to the use of sex-based actuarial factors. Whether that exemption can be relied on for the long-term is doubtful following this decision (see further below) and trustees and sponsoring employers will need to consider whether it can safely be relied upon.

Should pension schemes review their actuarial factors?

If the Test-Achats case applies to defined benefit pension schemes, the increased cost of benefits for male members might not be matched by a corresponding reduction in the cost of benefits for female members. In these circumstances companies are likely to be reluctant to see changes to actuarial factors before such changes are required (by the removal of the current exemption in the Equal Treatment Directive). Trustees may have greater concerns to see the non-discrimination principle reflected at an earlier date. However, for schemes that do not currently have unisex factors, the actuarial implications are in practice likely to take some time to work through. In the short-term there may therefore be little change to actuarial factors due to the risk of such changes having to be revisited in the light of any subsequent developments or practice.

What will happen next?

The Equal Treatment Directive refers to the general provisions in the Charter of Fundamental Rights of the EU (the EU Charter) relating to equal treatment. In our view the ECJ might be expected to hold (on the same reasoning as in the Test-Achats case) that the Equal Treatment Directive has to be re-assessed in light of those provisions. As the ECJ ruled in the Test-Achats case that sex-based insurance premiums are incompatible with the principle of equal treatment for men and women under the EU Charter it seems likely that it would hold that the use of sex based actuarial factors in pension schemes is incompatible with those provisions.

It remains to be seen what developments occur as a result of the Test-Achats ruling. Possible actions include the following:

  • the Equal Treatment Directive could be amended to remove the exception in relation to sex-based actuarial factors;
  • a case could be brought before a domestic court. That court could then ask the ECJ to determine whether the exception in the Equal Treatment Directive in relation to actuarial factors is invalid on the basis that it is contrary to the principle of equal treatment for men and women under the EU Charter; or
  • the UK government could legislate to amend the Equality Act 2010 and the accompanying Regulations which set out the circumstances in which the use of sex-based actuarial factors is permitted (presumably this would be done following consultation).

Pension schemes will need to monitor legislative and case law developments in these areas carefully.