Mr. Deputy Speaker
With this, it will be convenient to discuss also amendment No. 20, in page 42, line 2, leave out 'or (3)'.
§ Mr. Kirkwood
I do not want to detain the House any longer than I can help, but it is worth spending time, even at this late stage in the progress of the Bill through the House, to consider sexual discrimination on actuarial grounds in private and occupational pension schemes.
I am prepared to accept the criticism that this issue relates more to sex discrimination than directly to pensions, but the amendments—which are probing—would make it unlawful for defined benefit occupational pension schemes, defined contribution schemes, occupational pension schemes and personal pension schemes to differentiate actuarially on the ground of sex for the purposes of calculations of both contributions and benefits.
At present, the application of sex-specific actuarial factors is permitted under the current regulations when calculating pensions contributions and benefits. Allowance for that provision is reinforced in the Bill. It is right to raise questions about that because it is possible to argue that we should oppose any sort of discrimination on the ground of sex; that includes discrimination based on an expectation that, on average, women will live longer than men.
Of course, as the House will know, actuarial calculations are based on a range of life style factors, such as smoking, diet, amount of exercise, occupation and social class, in addition to a genetic predisposition that determines that women will, on average, live longer than men. Average life expectancy, however, does not tell one when one will die; all of us know women who have died in their 60s and men who have died in their 90s. I understand that the state pension system does not discriminate on the ground of sex. Other life style factors such as smoking, diet, occupation and income level create much greater actuarial differences than that of gender alone.
An independent report was drawn up on behalf of the Equal Opportunities Commission in 1989 by the actuarial consultants Tillinghurst. It was called "Unisex Pricing in Long-Term Insurance". Its conclusion was that there would be no great disruption to the life insurance market if unisex pricing were introduced for the determination of payments and benefit.
I want to draw the House's attention to the experience in the United States of America. In 1978 and 1983, the Supreme Court ruled that the use of sex-specific actuarial factors in the calculation of pensions was unlawful under the Civil Rights Act 1964. It is now the case there that pensions contributions are assessed on unisex mortality tables and that sex distinctions have been eliminated from all calculations.
In addition, the European Court of Justice has considered the issue extensively and ruled that the use of sex-specific actuarial factors in defined benefit schemes 448 is outside the scope of article 119 on equal pay. Of course, the Minister will probably be aware that it has yet to make a judgment on differential rates of benefit and contribution for defined contribution schemes, but by removing this clause of the Bill, as the amendments propose, and by amending section 45 of the Sex Discrimination Act 1975, the United Kingdom would be following a similar path to the United States Supreme Court and would be leading the way for the European Union.
As the Minister may know, the Equal Opportunities Commission has been calling for a repeal of the actuarial defence in section 45 of the Sex Discrimination Act, for direct discrimination in insurance and annuities according to sex or gender. It would be simpler, although technically incompetent in terms of the scope of that Act, to repeal the whole of section 45. To remove from women any avoidable structural disadvantage in the provision of annuities is of great importance for social policy precisely because of the combination of women's life expectancy and many other life and career factors that already tend to depress their chances, relative to men's, of accumulating an adequate retirement income. In the amendments that I moved last night, I was seeking to focus the Government's attention on the difficulties that women face in retirement, particularly because of their tendency to work part time and in having their career patterns interrupted.
The Government's decisions in the past few years to encourage people to take financial responsibility for their retirement, by creating readily obtainable personal pensions and allowing for contracted-out money purchase occupational schemes will not benefit women to the same extent as men if they find that they have to pay more into a scheme and receive less back. The actuarial justification that women receive less back in benefits because they live longer can easily be countered with the argument that the needs of women in their old age are greater because they live longer; thus, there is a need for greater assistance and care.
There are also the problems associated with reduced mobility and the possible need for special diets. All those matters give rise to additional expense and must be paid for somehow. I shall conclude my case by quoting two sentences from the European Court of Justice report in the Neath v. Steeper judgment. It states:The Commission claims … any difference in treatment based on sex would be permissible only if it were objectively justified. Statistical data based on the life expectancy of the two sexes do not, in its view, constitute an objective justification because they reflect averages calculated on the basis of the entire male and female population whereas the right to equal treatment in the matter of pay"—that was the issue in front of the court—is a right given to employees individually and not because they belong to a particular class.The Government have a duty to balance discrimination between the sexes for benefits and contributions. This may not be the appropriate legislation or the right time or place, but it is certainly the right issue and something should be done about it quite soon.
§ Mr. Arbuthnot
I was not expecting a debate on this amendment. This is the second time today that that has happened. The hon. Gentleman relies quite heavily on the European Court of Justice words on the matter in the case of Neath v. Steeper. The words that the hon. Gentleman 449 quoted are set out in paragraph 27 of the judgment. However, if he reads the judgment he may find that the court set out that argument in paragraph 27 in order to reject it comprehensively in paragraphs 28 to 34. The hon. Gentleman should not place too much reliance on it.
The amendment would remove a permitted exception to the equal treatment rule that was granted by the ruling of the European Court of Justice in the case of Neath v. Steeper. The amendment proposes the removal of a subsection in the Bill that would permit schemes to use sex-based actuarial factors when deciding the necessary funding of the scheme, and also in the application of such factors when calculating certain benefits arising from the scheme.
The use of sex-based actuarial factors in relation to the funding of the scheme simply reflects the fact of life that, on average, women live longer than men, as the hon. Gentleman so rightly said. That matter concerned the Committee, but we felt that we could do little about it. As a result, schemes generally have to pay pensions to women on average for a longer time than for men. That is an inescapable fact of life and it must be accounted for if schemes are to be adequately funded to meet their liabilities.
Clause 63(3)(a) reflects the fact that employers may need to make higher contributions to schemes in respect of female members than for male members. Consequently, where a pension benefit is commuted to a lump sum, the amount paid to a woman is normally greater than that paid to a man because it reflects the greater amount of money in the fund to take account of her longer average life expectancy.
By the same token, the lump sum will, on average, need to last a woman longer than it would a man. Similarly, transfer payments where an individual transfers from one scheme to another are normally higher for women than for men. That again reflects the higher investment made for a woman in the transferring scheme and the fact that the receiving scheme will require a higher transfer payment than for a man if it is to provide for benefits of equivalent value to those that she had in the transferring scheme, as well as providing a periodic pension of equal value to men in the receiving scheme.
I should add that the clause is permissive. There is nothing in European law or in the Bill that requires the use of sex-based actuarial factors; therefore, the clause does not prevent schemes from using unisex actuarial factors based on the average life expectancy of the whole population if they so desire.
Funding a scheme on a national, unisex basis could put a strain on a fund if a scheme had more female members than male members, because there would be a greater call on the fund by the longer-living women. The likely result would be that schemes would err on the side of caution and would fund more closely towards the more expensive female rates. Costs would increase, and pensioners would therefore receive less value from their schemes. Male members of the scheme would be likely to opt out shortly before pension age and purchase an annuity or personal pension on the open market which would not be restricted to unisex rates and might offer them a better pension for their money. Meanwhile, the occupational scheme would be left with a higher proportion of female members, and a higher overall increase in costs which would have to be 450 met by employers and remaining members of the scheme. Actuaries would have to take such matters into account when assessing the proper contributions to such a scheme. Such selection against occupational schemes by their male members could seriously damage the viability of those schemes. For those reasons, I do not support the amendment although I fully understand the hon. Gentleman's reasons for moving it and the concerns that lie behind it.
§ Mr. Kirkwood
I am content because of the Minister's last sentence. I carefully avoiding saying that the Neath v. Steeper judgment was conclusive. I carefully avoided doing that because I have been in courts. The judgment is not the point in any case, because it relates more to pay than to pensions, contributions and benefits. The Minister's technical objections have to be weighed in the balance, but in the fullness of time we shall be pulled in that direction, I suspect through European Court judgments although perhaps not Neath v. Steeper. It would be better to consider these matters properly in advance so that the technical matters to which the Minister rightly referred can be redressed before changes are made. They must be properly attended to in good time. I beg to ask leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.