THE QUESTION: Does the EU’s guidance on the Test-Achats decision confirm absolutely that occupational schemes are exempt from the gender underwriting
ban?
THE ANSWERS:
The EU says the exemption does apply to occupational schemes. And our government also thinks the ruling does not apply to occupational pension plans. They seem to be taking the view that if they go around saying it enough times, people will believe it in an attempt to link the effect of the ruling to contract-based pensions only.
Contract-based schemes are treated as insurance contracts and so they will be affected by the gender underwriting ban following the Test-Achats decision that will apply to new contracts concluded from 21 December 2012.
Providers will struggle to argue that contract-based schemes such as group personal pensions should also be exempt because they are delivered through the workplace. It doesn’t matter that there is a company’s name on the title of the scheme. These contracts are dealt with under the rules for insurance. So will those who leave trust-based schemes to exercise the open market option.
Zoe Lynch, partner, Sackers
Many within the pensions industry had speculated that the Test-Achats ruling would be just the start. In time, the EU would expand the requirement for gender-neutral pricing to actuarial factors used in occupational pension schemes. The European Commission’s guidance confirms that it is not current policy to expand the ban on gender-based pricing in that way. The guidance provides welcome comfort for occupational pension schemes that would otherwise face the expense and upheaval of revaluing liabilities. However, although the risk of that scenario is reduced, the guidance does not entirely rule out a contrary ruling by the European Court of Justice.
Where an occupational pension scheme provides for a pension to be paid from an annuity policy, the ban on gender-pricing will not apply. However, if the member has to enter into an insurance contract directly with the insurer without the employer’s involvement, the ban will apply. When a member of a DC pension scheme chooses an annuity, the price of the annuity will need to be gender-neutral.
Simon Tyler, legal director, Pinsent Masons
There are two directives here – one relating to the provision of goods and services, and the other in relation to discrimination in the workplace. Test-Achats only applies to goods and services, whereas occupational pensions have always been seen as a workplace matter. GPPs have always been dealt with under the former
Things will get even more complicated when people have AVCs with insurance companies alongside their occupational schemes. They will find the ruling does apply to part of their pension but not to others. Similarly, those going from the occupational arena to the open market option which is populated by insurance companies will find they become affected too.
We think the simplest thing is to apply unisex underwriting across the board. That way we can avoid arbitrage between the two regimes. You might be able to argue that a GPP is not a contract where auto-enrolment comes in. The DWP got an exemption from the distance marketing directive for auto-enrolment into GPPs and group stakeholders. They could try to do the same for contract-based group pensions, but that still leaves the individual market affected.
John Lawson, head of pensions policy, Standard Life