slaughter and may
Implications for occupational pension schemes - the next
Barber?
The European Court of Justice (the “ECJ”) judgment in the Test-Achats case is expected to be given on 1st March,
2011.
The case is likely to have substantial ramifications for UK occupational pension schemes.
The case is about whether insurance companies, in pricing insurance policies, can charge a different price to a
man and a woman, where that differential price is justified through the use of actuarial factors reflecting different
experience as between comparable men and women. For example, an insurance company will, in general,
charge a woman more for an annuity than a comparable man of the same age, reflecting the expected longer life
expectancy, on average, of women.
The Advocate General’s opinion in the Test-Achats case concluded that the exception in an EU Directive allowing
sex differentiated actuarial factors for pricing insurance policies is unlawful and should be removed. In turn,
it would follow that the domestic legislation of an EU Member State, such as the UK, which contains such an
exception, would also have to be interpreted as if that exception did not exist (or the legislation would otherwise
have to be modified to remove the exception).
If, as it seems likely, the ECJ follows the Advocate General’s opinion, then it would no longer be permissible, subject
to any temporal limitation, for UK insurers to use differential pricing of insurance policies for men and women in
comparable situations.
If the decision of the ECJ is as expected, it is likely there will be very real and immediate implications for
occupational pension schemes.
The likely effect, if the ECJ judgment goes as expected, is that occupational pension schemes will have, going
forward, to use gender neutral factors for all of the following:
•• commutation factors for exchanging pension for lump sum (or vice versa),
•• factors for calculating the transfer value for a transfer out (including cash equivalents),
•• early retirement factors,
•• late retirement factors,
•• factors for conversion of money purchase benefits into scheme pension (whether from AVCs, salary sacrifice,
money purchase benefits or otherwise),
BRIEFING
7 FEBRUARY 2011
Judgment expected in the Test-Achats case on 1st March,
2011:
7 february 2011
•• factors for surrender of member’s pension for an increased spouse pension, and
•• factors for calculating transfer credits on a defined benefit basis in respect of transfer values received.
Comment: If gender neutral factors are not used, then the member who has the less advantageous actuarial factor
applied may be able to claim that the better factor for the comparator of the opposite sex be used instead. In other
words, levelling up amounts involved could be quite material.
Depending on how any temporal limitation is specified in the ECJ judgment, it may well turn out that, with effect
from 1st March, 2011, occupational pension schemes will be required to use gender neutral actuarial factors for
calculating benefits for members that fall due to be paid (or transferred in/out) on or after 1st March, 2011.
In other words, the “Barber Window” for equalised actuarial factors could well start as early as 1st March, 2011.
There are a number of actions which occupational pension schemes should consider taking immediately by way of
precautionary move.
The position is considered in more detail in the attached note (including some suggestions on management of legal
risk in this area in the period up to 1st March, 2011.
Further details are available for clients from your usual contact at Slaughter and May.
© Slaughter and May 2011
This material is for general information only and is not intended to provide legal advice.
For further information, please speak to your usual Slaughter and May contact.
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