Unisex pension schemes

Updated March 2011

A recent European Court of Justice (ECJ) case has outlawed gender based actuarial calculations for insurance premiums, effective 21 December 2012. Although primarily an insurance case, this will impact on how pension annuities are priced. It could also have an impact on how the gender specific liabilities of occupational pension schemes are calculated and an increase in liabilities. 

Current UK law

At present, occupational pension schemes benefit from exemptions under the Equality Act 2010, which permit the use of gender based actuarial factors. These include the different calculation for men and women of transfer values, early and late retirement, lump sum payments, the surrender of part of pension for a spouse’s pension and transfers in from a personal pension.

The UK courts may ask the ECJ for a preliminary ruling on the exemptions or legislation may be introduced to remove the exemptions in the Equality Act. If neither of these occurs, from 21 December 2012 trustees should level up benefits and calculations to that of the disadvantaged sex. This is in line with the approach taken in the Coloroll case, when the normal retirement date for men was levelled up to that of women at age 60.

What should trustees do now?

Trustees of defined benefit and defined contribution schemes should add an agenda item to their next meeting, to carry out a review of all areas of their scheme where calculations are carried out using sex specific calculations. As a starting point, the exemptions used under the Equality Act, should be considered. Trustees should then assess the impact on the scheme’s liabilities and whether any recovery plan should be revisited. Those trustees who are currently carrying out an actuarial valuation should factor in the unisex changes.

In particular, if trustees are currently carrying out any of the following exercises, they should discuss any gender related calculations provided by their actuary or an insurance company with their lawyers or advisers. This may lead to increased cost or liabilities or reduce the benefits offered to current or prospective members under the scheme.

• Liability reduction exercises
• Buy-in
• Winding up
• Longevity swap
• Bulk transfer in
• Scheme merger

What next?

More clarity should evolve over this year. A worse case scenario could be a backdating of unisex factors to 1 March 2010, though it is more likely that they will be effective 21 December 2012.

This article was first published on schemeXpert.com, a Financial Times service (see Related links).

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at March 2011. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

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