The European Court of Justice has recently handed down its judgment in the Test-Achats case (Case C-236/09). The court considered the question ‘Is it compatible with the fundamental rights of the European Union to take the sex of the uninsured person into account as a risk factor in the formulation of private insurance contracts’.
Following the court’s ruling, from 21 December 2012, it will be unlawful for a party to consider gender of an insured individual as a risk factor in insurance contracts. As a result, this will have a knock-on effect to pension schemes, with the cost of annuity policies likely to increase.
EU Directive 2004/113, which implements the principle of equal treatment between men and women in the access to and supply of goods and services, prohibits the use of sex as a factor in calculating premiums and benefits for the purposes of insurance and related financial services. However, Belgium (and the UK) had taken advantage of the right to derogate from the principle. found in Article 5(2) of the Directive. This allowed the government to legislate to allow
proportionate differences in individuals’ 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.
However, the ECJ has ruled that a non-time restricted derogation is contrary to higher-ranking EU law, and is therefore invalid from 21 December 2012.
The ruling is likely to have the following effects, amongst others, on UK pensions schemes:
annuity pricing is like to be impacted. At present, insurance companies base annuity pricing on actuarial and statistical data, which shows a general trend of women having a longer life expectancy than men. Therefore, an equal annuity costs more for a woman as she will receive it for longer; and the income drawdown limits prepared by the Government Actuary’s Department may have to be revised as they currently allow a man to take a greater maximum income from a drawdown product that a woman.
We are currently producing a fuller briefing note on the decision and will be sending this out in due course.