Employer liability for occupational pensions: Unequal rates for men and women

New ruling of the European Court of Justice (ECJ)

The ECJ also obliges employers in occupational pension schemes to use only so-called “unisex tariffs” from 21 December 2012, for example when using direct insurance. Up to now, female employees have received a lower occupational pension than male employees for the same contribution, because men have a shorter life expectancy and therefore receive higher pensions in old age for the same contribution.

Employer liability due to supplementary pension payments for women?

The ruling of the ECJ of 01.03.2011 (Case C-236/09) obliges employers or insurers to use unisex tariffs for occupational pensions, such as deferred compensation, from 21.12.2012 onwards. The General Equal Treatment Act (AGG) has been in force since 18.08.2006. The AGG is based on several directives of the European Union (2000/43/EC of 29.06.2000, 2000/78/EC of 27.11.2000, 2002/73/EC of 23.09.2002 and 2004/113/EC of 13.12.2004).

The ECJ has now declared invalid an option not to use unisex tariffs in the case of statistically proven differences between men and women in Art. 5(2) of Directive 2004/113/EC, albeit with a transitional period until 21 December 2012.

Defined contribution direct insurance, Pensionskassen and reinsured support funds

Insofar as the directives stipulate the duty of equal treatment in a sufficiently concrete manner, employees can also invoke this for periods prior to 18 August 2008 after the expiry of a usual implementation period for the national legislator of approximately two years. The ECJ’s decision could well lead to female occupational pensioners suing for higher benefits.

This concerns defined-contribution insurance tariffs for direct insurance, Pensionskassen and reinsured support funds, as almost without exception no unisex tariffs have been used in these areas to date.

Employer liability for overpromising men?

The implementation of the ECJ ruling means that anyone who has a deferred compensation policy as a male employee today or who takes out a new policy by 2012 with premium payments until retirement must reckon with the fact that he will not receive the pension already guaranteed in the insurance policy. This is if, at least for future premiums, only lower gender-independent pensions may be calculated.

Here too, the widespread problem arises that employers promise their employees golden mountains for old age – but the insurance benefit does not fulfil this promise, which then results in employer liability for shortfalls.

The legislator may also intervene in guarantees of existing contracts l

The legislator can regulate the implementation of the unisex tariffs in such a way that pensions for men which have already been bindingly and guaranteed by the insurer in contracts concluded earlier are also reduced in order to refinance the pensions for women which will be of the same amount in future. However, it is also possible that the legislator simply does not regulate anything at all and takes the view that the EC Directives have been sufficiently clarified following the ECJ decision and that, in the absence of a new EC Directive, there is no need for a new law. In the end, this could then simply become a new task for labour courts.

Why the legislator can also level pensions for old stock

After the introduction of the unisex tariffs, many women will terminate their existing provision or stop paying contributions, and go into the new unisex tariffs, which are more favourable for them. Then newly insured men will meet there with the newly insured women, who will already be asking for them more often than before. But there is also an immediate mass of women who are converting their existing provision to the new favourable conditions.

The result is that a very large number of women are initially matched by only a few newly insured men. The new tariffs will then have to be calculated almost at the level of the previous women’s tariffs, with their low pensions, and will thus become even less attractive for men. The legislator could solve the problem by imposing the changeover to equal unisex pensions for all insured persons, regardless of when the contract was once concluded.

Prime example: Unisex industry seeks help from lawmakers

The same problem also arises in private health insurance: women could immediately switch to the unisex tariffs, which are more favourable for them, and there they would immediately be so enriched compared to men that the premiums for new entrants would have to be calculated even more up to almost the women’s level, skyrocketing. In order to avoid this, the PKV lobbyists have turned to the state so that it may also legally prescribe the unisex tariffs for all already insured customers. The ECJ does not require such a far-reaching alignment at all, because it would leave the contracts already in place at the end of 2012 untouched.

How to solve the problem: Lawmakers help at the expense of the insured

The German legislator, however, can also impose unisex equalisation for all existing customers nationally beyond the ECJ requirements in order to help the industry out of its signalled predicament. The supervisory authority has already given the go-ahead for this, even if this unisex conversion alone means that additional increases of up to 10% each will have to be implemented for existing contracts for men as of 1 January 2013, so that all women already insured at the end of 2012 can also be reduced to more favourable unisex premiums beyond the ECJ requirement. What seems possible in health insurance with the help of the legislator is just as easy to implement in life insurance.

Legislator as liability risk for employers , advisors and intermediaries

While something similar is being seriously discussed as a solution in the occupational pension system, in the case of a corresponding private pension instead of an occupational pension, the contracts with the gender-specific higher male pensions would remain in place – presumably: because the legislator could also regulate this differently, even retroactively. Because nothing is certain, it would be a “burden-sharing” law of equal treatment, so to speak, in which policyholders bear each other’s burdens, not insurers or employers. The private health insurance industry is showing how it is possible to intervene in existing contracts, commitments and “guarantees” with state help, if only they want to.

Male employees threatened with disadvantages in the company pension scheme

Men who have taken out deferred compensation in the past or today and up to 2012 must reckon with disadvantages, or with losses due to zillmerisation in the event of early withdrawal. Their old-age provision will possibly be less than they are currently promised, and also less than they are currently “guaranteed” in the insurance policy on a gender-specific basis. This is because the legislator can reduce these guarantees for equal treatment, in relation to future premium shares or completely. This in turn may result in liability on the part of the intermediary and advisor, as well as on the part of the employer, who fail to provide appropriate information. It can therefore be expensive for them if, for example, they are liable for the fulfilment of the originally higher guaranteed men’s pensions or have to pay damages due to a lack of clarification.

This applies not only to new deferred compensation schemes but also to those already in operation because, for example, a termination still today often leads to lower losses than if premiums were to continue to be paid and the scheme terminated only a few years later. This is because with many contracts the acquisition costs are only fully offset over a period of 5 years, so that earlier termination minimises the losses, whereas failure by the employer to clarify the situation further increases the loss.

Company pension scheme: later dispute about the amount often pre-programmed?

Through the Occupational Pensions Act, the legislature has imposed an additional duty on employers “as disinterested investment managers” of their employees, along with liability for doing so. The situation is different, for example, in the case of capital-forming benefits, where it is up to each employee to take care of his or her own investment – the employer then merely acts as a paying agent. Employers should know what they can expect – but it is questionable whether they will be informed of this by sales-oriented intermediaries. Employee retention through occupational pension schemes does not work if employees feel deceived at the end.

by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm

by courtesy of

www.innovationundtechnik.de (published in Innovation und Technik 03/2012, pages 41-43)

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About the author

Dr. Johannes Fiala
PhD, MBA, MM

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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