Ties that bind
People in contract-based schemes get the worst deal once again
The Government is always talking about defending our interests in Europe. Demanding that contract-based schemes be exempt from the ban on gender underwriting should be at the top of its list.
From December 21, annuities bought from insurers with funds from occupational schemes will not be subject to the gender underwriting ban, the European Commission has confirmed, but if the individual thinks that annuity is poor value and decides to shop around, that immunity is lost.
Similarly, if the scheme member also has an AVC, it seems that will be only allowed to buy a unisex annuity.
Meanwhile, contract-based schemes are hampered by having to offer the poorer value unisex annuity for everyone.
Why is it that people in contract-based schemes always get the worst deal? The lower governance threshold is down to the choice their employer has made in setting up the scheme but it is the system that makes higher-rate taxpayers in GPPs and group stakeholders have to go to the effort of claiming back their higher-rate tax relief. Those in occupational schemes get theirs automatically but those in the contract world have to remember to claim theirs back, with thousands forgetting or not bothering to do so.
Ask anyone in the street, or in Brussels for that matter, the difference between a contract-and a trust-based pension and they will not have a clue. So why are the two being treated differently and is there an opportunity for our representatives in Europe to stop millions of pensioners collectively losing hundreds of millions of pounds?
The Test-Achats case removed the exemption to the principle of equal treatment between men and women in the access to and supply of goods and services that had previously been granted to insurance products.
However, the EC has confirmed that the directive only covers insurance and pensions that are private, voluntary and separate from the employment relationship, “because employment and occupation are explicitly excluded” from its scope.
Equal treatment of women and men in relation to occupational pensions is covered by a different directive.
The EC guidance published just before Christmas says where occupational pension schemes provide for the payment of a benefit under a specific form, such as annuities, it will be treated under the workplace rules and therefore benefit from the exemption.
The problem for contract-based pensions is that they are suffering from an over-rigid interpretation of their legal status that bears no relation to what they are in reality.
If the directive banning gender underwriting only relates to contracts that are ’private, voluntary and separate from the employment relationship’, why can we not argue that this does not apply to group stakeholders and GPPs? Group stakeholders, with no advice, no real consumer choice exercised by the employee, no longer voluntary once auto-enrolment comes in and completely linked to the employment relationship, can surely meet that definition.
GPPs and group stakeholders have not traditionally been dealt with under the IORP regulations but there is no reason why we cannot ask Europe for them to be treated as workplace arrangements for the purposes of the implementation of the gender discrimination ban.
It is deeply frustrating that millions of people in contract-based schemes, myself included, should be losing out on perhaps a couple of per cent of income for life because of a legal nicety.
John Greenwood is editor of Corporate Adviser