What was the Test-Achats case about?
The Gender Directive (2004/113/EC) provides a framework for combating discrimination on the grounds of gender in the provision of goods and services. In the Test-Achats case, the European Court of Justice (ECJ) ruled that an exemption in the Gender Directive was incompatible with higher ranking EU law. That exemption permitted proportionate differences in individuals' insurance premiums and benefits where the use of gender was a determining factor in the assessment of risk (based on relevant and accurate actuarial and statistical data).
The ECJ held this was incompatible with the principle of equal treatment contained in the EU Charter, and was invalid. In order not to cut across existing insurance contracts, the ECJ ruled that the exemption would be invalid with effect from 21 December 2012.
Why has the Government consulted on this issue and what has it said?
The Government issued a consultation paper in December 2011 and a response in July 2012 on how it intends to amend UK legislation in line with the ECJ's judgment in Test-Achats (C-236/09).
The Equality Act 2010 prohibits discrimination by service providers when providing a service to the public or a section of the public. There is currently an exemption for anything done in relation to an annuity, life assurance policy, accident, insurance policy or similar matter involving the assessment of risk if:
- that thing is done by reference to actuarial or other data from a source on which it is reasonable to rely; and
- it is reasonable to do that thing.
In relation to contracts of insurance or related financial services entered into on or after 6 April 2008, differences in premiums and benefits do not contravene the prohibition on discrimination if the use of gender as a factor in the assessment of risk is based on "relevant and accurate actuarial and statistical data".
The Government has confirmed that it proposes to repeal this exemption with effect from 21 December 2012 in order to comply with the Test-Achats ruling. Draft amending regulations have been published.
The Equality Act 2010 also contains an exemption for insurers who provide insurance pursuant to arrangements made by an employer for its employees, and other persons, as a consequence of their employment. The Government does not propose to amend this exemption. The Gender Directive (and Test-Achats ruling) only relates to policies that are "private, voluntary and separate from the employment relationship". The Government's view is that the Gender Directive does not apply to this exemption.
What contracts does the Test-Achats judgment apply to?
The Government's view is that the Test-Achats judgment only applies to new contracts entered into on or after 21 December 2012. However, what this means in practice is unclear – if a contract is renewed, does this mean it is a new contract, or just a renegotiation of existing terms?
There is no definition of "new contract" within the Gender Directive and the Government will not be giving any guidance. The European Commission has produced guidelines which may be useful in helping to align interpretations of insurers across member states. The Government thinks that courts may find the guidance to be persuasive and influential.
How will this affect group insurance schemes?
Insurers will need to consider whether their group insurance scheme is caught by the provisions of the Equality Act 2010. In particular they will need to consider whether they are "providing a service to the public or a section of the public".
Even if a group insurance scheme is caught by the Equality Act 2010, the Government considers that simply collecting data on gender, or using it to assess the overall risk of a pool of people, does not in itself contravene the Act or the Gender Directive in light of the Test-Achats ruling.
What about annuities purchased from pension schemes?
It is unclear where the boundaries lie between the Equal Treatment Directive (which applies to occupational pensions and still permits gender specific pricing) and the Gender Directive (which applies to contracts which are "private, voluntary and separate from the employment relationship" and does not permit gender-specific pricing). The Government accepts there is ambiguity but has said that this can only be resolved by further clarity in European law or by the courts. The Government will not be providing guidance on this.
This difference in treatment could result in a two-tiered annuity market, where gender specific annuities are available to some people through work based pension schemes while annuities privately bought by an individual must be priced gender-neutrally.
How will the Test-Achats ruling impact on annuities which are bought from money purchase occupational pension schemes? Are these done "with the involvement of the employer" such that they are part of the employment relationship and fall outside the scope of the Gender Directive (and Test-Achats ruling)?
The Government says that the European Commission's guidance suggests that where an annuity is purchased using funds held in a work-based scheme but without involving the employer or the scheme, the purchase would fall within the scope of the Gender Directive. As a result, it would be subject to the Test-Achats judgment. Does it matter whether the annuity is purchased by the trustees for the benefit of the member or by the member directly (via the open market option)? This is an area of uncertainty.
The Government does not think there is sufficient evidence at this stage to justify extension of the requirement to provide gender-neutral pricing of annuities to work-based pension arrangements as well as personal pensions. It intends to keep the issue under review and monitor the impact of the Test-Achats judgment on the annuities market.
Changes may however be required in the future. 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 (which applies to occupational pension schemes) needs to be reassessed in light of the provisions of the EU Charter relating to equal treatment. This could result in the current exemption in respect of gender-based actuarial factors being held to be incompatible with those provisions.
So where does this leave us?
The Government appears to be doing the minimum necessary to comply with the ECJ's ruling in Test-Achats. The Government will not be providing further guidance as it believes that only the courts can provide an authoritative interpretation of the Test-Achats judgment. It takes the view that additional guidance from the Government would not help to minimise the risk of legal challenge to insurance providers.
While it is clear that the Government will not (currently) be going beyond the scope of the Test-Achats judgment, we anticipate that there may be case law in this area - namely due to the pricing discrepancies that could arise between individually purchased annuities and those purchased through an occupational pension scheme.
In reality, trustees of occupational schemes and employers offering insurance-based products will be in the hands of the insurance companies providing such products and the approach they take to pricing in light of the Government response. The Government recognises that decisions facing members of work-based pension schemes at retirement may be more complex once the ECJ judgment takes effect. The Government says that this reinforces the importance of encouraging members to consider the open market option.
For now, there is not too much that employers and trustees can actively do, other than monitor the reaction of the insurance market to the Government response, and assess whether their own providers are still offering value for money in comparison with competitors.