ECJ gender ruling – pensions industry reeling at lower incomes and uncertain future

The pensions industry faces uncertainty and lower incomes across the board as a result of the European Court of Justice’s ban on gender underwriting, say experts.

But the PMI and group risk sectors are expected to be largely unaffected by the change because they usually underwrite on unisex grounds.

Pension experts are warning that annuity rates will be overall worse for everyone across the board by December 2012 when the new rules are implemented because of the combined effects of the unisex underwriting rules and Solvency II.

Law firm Sacker & Partners say the ruling will cause an administration headache for insurance schemes and uncertainty for pension schemes, as because the ruling applies specifically to insurance, it is unclear whether it applies to the occupational pensions sector.

The Association of Medical Insurance Intermediaries says the PMI sector will only be affected in a handful of cases, however. Zoe Lynch, partner at Sacker & Partners says: “The ECJ has confirmed what we suspected – the use of sex-based actuarial factors will be outlawed for setting insurance contracts. The ECJ have given the industry valuable breathing space – by hanging a delay onto a transitional provision hook, they have given the industry until 21 December 2012 to work out what it all means.

“The ruling does seem to anticipate that all insurance contracts will need to be examined – not just those entered into after that date. A massive administration exercise leading to tension headaches all round. This will apply to annuities purchased to provide an pension income as well as simpler short-term insurance products such as car insurance. “As it expressly refers to the insurance sector – occupational pension schemes will be wondering how the ruling will apply to them, and whether they can continue to use actuarial factors for their own purposes”.

Lindsey Joseph of AMII says: “The vast majority of PMI insurers don’t have different premiums for gender and for those that do, the difference in premium is not significant. However, there are a couple of insurers who have used gender pricing in the past and so have older policies on the books that would need to be adjusted from 21 December 2012.”