With its latest ruling which outlaws gender as a basis for determining annuities and life contracts, the European Court of Justice (ECJ) has won itself few friends among either pension providers or UK companies that still operate final salary schemes.

While actuaries deal with the world as it is, on the basis of highly reliable mortality tables which incontrovertibly show that women, on average, live longer than men, the ECJ has declared that men and women are equal in all possible regards. When  the ECJ was asked to consider whether or not taking gender into account when writing private insurance contracts was illegal under European anti-discrimination directives, it decided it was.

It would appear to be a strange ruling since insurance is about statistics and probabilities, not about the political correctness of gender equality, but the facts that women live longer than men, and the fact that younger women have fewer motor accidents than younger men, have been clearly proven. However, all of that seems not to be relevant to the ECJ, and from 21 December 2012, gender-based decisions in the insurance services sector in the EU are outlawed.

The decision will not be helpful to finance directors and trustee boards of final salary pension schemes because any changes which incur time and expense will mean costs being added to schemes. Trustees will also have an extra duty, namely that of ensuring that the ECJ’s ruling is put into effect. Generally speaking, tax-free lump sums and pension transfer values will also need to be adjusted, increasing costs and equalising payments, potentially leading to larger pension funding deficits.

The present consequence of the mortality tables showing that men die earlier, on average, than their female colleagues, is that men enjoy a higher annual income, while women are expected to be drawing their somewhat smaller pensions for a few years more, so everything balances itself out. It is likely that the insurance industry’s solution will doubtless involve equalising annuities, which will be grossly unfair to some men and rather pleasing for some women who might get slightly larger annuities than they otherwise would have. The alternative view is that the industry might just level everything down.

It’s worth noting that women were not being dealt with unfairly before, since the mathematical logic behind the annuity was well proven, but now there is a reasonable chance that they will be privileged at the expense of their male colleagues, which ECJ consider to be fair. Proceed with caution and seek expert advice before making any major decision.