John Hooper & Co

Solicitors

Newsletter 29 – Decision by European Court of Justice Leads to Pensions Dilemma

A recent ruling of the European Court of Justice has caused a great deal of concern in the insurance industry and will have consequences for Family Law.

The EU Judges have issued a ruling overturning the insurance industry’s opt-out from the EU’s 2004 gender directive.

This means that the insurance companies can no longer differentiate between men and women (based upon their sex). An example of the consequences of that decision is that the motor vehicle insurance companies can no longer distinguish between young male applicants and young female applicants – notwithstanding the overwhelming statistical evidence that the former are far more likely to be involved in road traffic accidents than the latter.

This ruling will affect many areas of peoples’ lives. It could also impact substantially on the pensions industry.

Up until now, the pension industry has relied upon established life expectancy tables in order to calculate the appropriate level of pension payable to any one person upon retirement. The life expectancy tables have demonstrated that, in general, women live longer than men. As a result, women are in receipt of a pension income for a longer period of time than men. It therefore follows that women need to have a higher transfer value in order to achieve the same income in retirement as men (assuming that the man and the woman retire at the same time).

By way of example, if there is just one pension scheme available for division between the spouses, in order to take account of life expectancy tables, the woman will need to have more than 50% of the value of the scheme in order to achieve an equal income in retirement to the man.

The effect of this ruling is that life expectancy tables will now have to be ignored (in spite of the fact that the ruling will, of course, have no effect upon the age at which we are all destined to die).

A number of commentators have predicted that the ruling will produce disadvantage and inequality for women. The decision will become effective from 21st December 2012.

April 2011

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