James McConville, partner
Pensions Law Blog March 1st 2011
ECJ Gender Decision Will Impact on Pensions
The list of famous (or perhaps that should be infamous) Belgians may have gained another entry this week, with the decision of the European Court of Justice (ECJ) in the case of Association Belge des Consommateurs Test-Achats ASBL and others (C-236/09).
In June 2008, two Belgian citizens, joined by their national consumer watchdog, challenged the constitutionality under Belgian law of article 5(2) of Directive 2004/113/EC (the Directive). Article 5(2) granted derogation from the principle of equal treatment between the genders in relation to insurance premiums, where accurate and relevant statistical data could be produced to show that gender was a key determinant in factoring risk.
The Belgian Constitutional Court referred the case to the ECJ for a ruling as to whether article 5(2) was invalid, on the grounds that the principles of equal treatment of men and women under the EU Charter of Fundamental Rights (the Charter) took precedence over the terms of the Directive.
Advocate General Juliane Kokott gave a preliminary ruling on 30th September 2010, recommending to the ECJ that article 5(2) be ruled invalid as it was contrary to the principles of equal treatment in the Charter. She also recommended a transition period of three years from the date of any ECJ judgment, to allow insurers to reform their risk structures.
On 1st March 2011, the ECJ ruled that the provisions of article 5(2) of the Directive will be invalid from 21st December 2012 – the original date for Member States to review the impact of derogation. The ECJ’s reasoning was that article 5(2) did not put a time limit on the application of any derogation from the Directive – only a date for review – and an indefinite derogation would work against the stated EU objective (through the Charter) of equal treatment of men and women.
Interestingly, the ECJ seems to have sidestepped the whole issue of whether article 5(2) should exist at all. The ECJ press release states that:
“In the progressive achievement of....equality [between men and women], it is for the EU legislature to determine, having regard to the development of economic and social conditions within the European Union, precisely when action must be taken”.
In other words, it is for the EU’s lawmakers and not its Courts to determine whether gender should be taken into account in assessing insurance premiums and for what period. This leaves the door open for amendment of the Directive to restore article 5(2) for a longer (but determined) period.
So what does this mean for Irish pensions? Well, in the absence of any restoration of article 5(2), the practical effect will be that the cost of purchasing annuities for males will have to be equalised with those of longer-living females.
How this will happen – whether by a reduction in the cost of female annuities, by an increase in the cost of male annuities to that currently paid in respect of female annuities or some kind of meeting in the middle is, as yet, unclear. It is possible (but unlikely) that, unlike for other insurance premiums, the overall cost of purchasing annuities in Ireland could fall.
An increase in the cost of annuity purchase for our already hard-pressed defined benefit schemes could be serious – particularly for actives and deferred members of schemes in winding-up, who could see their transfer values fall further. It might also have the effect of pushing retiring members of defined contribution schemes away from annuities and towards approved retirement funds (ARFs), notwithstanding the recent increase in the amount of the imputed distribution for ARFs.
It will also be interesting to see what impact this ruling will have on the rates of the proposed sovereign annuities promised in last year’s National Pensions Framework.
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