Plan Sponsors Urged to Consider Gender Based Actuarial Factors
23 July 2012 (PLANSPONSOREurope.com) - Plan sponsors and Trustees should consider whether gender-based actuarial factors are written into their plan following a UK government consultation into using gender to price insurance products, Zoe Lynch, partner at law firm Sackers told PLANSPONSOR Europe.
In a case involving Belgian consumer group Test-Achats, the European Court ruled that an exemption in the Gender Directiv,e which allowed the use of sex-based actuarial factors, was unlawful and imposed a transitional period for its removal to run until 21 December 2012. Insurers now need to use sex-neutral factors for assessing premiums and benefits under new insurance contracts (including annuities). This means that some insurance products will be cheaper – for instance, car insurance for the boy racers – and some will be more expensive.
Last December the UK government consulted on how to implement the European Court's decision. The response to consultation – indicating how the law will be changed – was published last week. The response makes it clear that the government is "disappointed" by the decision, which it expects to have a "negative impact on consumers".
Lynch said: “Some DC [defined contribution] pension schemes allow members to purchase an annuity from the scheme rather than an insurance company. In order to work out how much the member will get as a pension from his DC pot, the scheme uses actuarial factors for conversion to calculate the in-scheme pension.
“Occupational pension schemes, which still use sex-based actuarial factors for in-scheme pensions, may wish to consider changing to sex-neutral factors in line with the switch imposed on the insurance industry by the Test-Achats judgment. Before making changes, employers and trustees will need to consider whether such actuarial factors are written into scheme rules. If they are, it may not be possible to change them as it would adversely affect a member's benefits. This could result in additional liabilities for the scheme as the "best of" the current factors being given to all members.
“However, DC schemes may already be looking at whether to continue to offer in-scheme annuitisation after the fallout of the Bridge Trustees case which will result in those in-scheme annuities being categorised as DB [defined benefit] not DC. As DB benefits these would be subject to the scheme funding and employer debt regimes – with risk shifting from the member to the sponsor.”