ZEW President Franz on Unisex Tariffs and Overzealous Anti-discrimination Policies

This article appeared in the December 2004 edition of the ZEWnews.

Unisex

This isn’t what you might be thinking. I’m actually going to talking about something slightly less exciting: insurance tariffs, or to be more exact, attempts towards more effective anti-discrimination policies.

“Unisex tariffs” are universal tariffs for both men and women. Under the Retirement Income Act, which will govern the future taxation on pensions, a new rule will be introduced in Germany requiring this kind of tariff for the Riester Retirement Plan. Until now, tariffs for the Riester Retirement Plan (one of the funded old-age pension schemes alongside company pensions) were calculated according to actuarial principles. Since women have a longer life expectancy than men, their premium payments are higher or, if they pay the same premiums, their pay-outs later on are lower. Though completely correct from an actuarial perspective, these kinds of calculations have attracted the attention of the anti-discrimination lobby, who see this premium price structure as discriminatory towards women.

Any attempt to combat the disadvantages faced by women is, of course, to be applauded, but actuarial calculations are not the most suitable starting point for such attempts. What’s worse, perceived discrimination is now being substituted for actual discrimination, since unisex tariffs in the Riester Retirement Plan will be more discriminatory towards men. This is because in order to make accurate actuarial calculations, the cash value of the pensions of both men and women must be equal. Since the benefits – in this case the Riester Retirement Plan – have to last for a longer period of time for retired women, their premiums must be higher. Otherwise, the cash value of women’s Riester pensions will rise in comparison to men’s. This is how unisex tariffs discriminate against men. This fact has also been pointed out by the German Council of Economic Experts in their most recent annual report – and with the approval of the council’s female member, no less. This will make the Riester Retirement Plan less attractive to men, not least because they will have to subsidise the benefits of female pensioners.

With this is mind, unisex tariffs should be seen as an overzealous anti-discrimination measure. According to the German federal government, whose equality guidelines go beyond those of the European Union, the burden of proof for discrimination on the grounds of race, ethnic background, religion, disability, age or gender, is reversed and severe penalties are to be imposed for any infringement of anti-discrimination law. Companies and landlords, for instance, should be on their toes; it’s not hard to imagine what lies in store for them. A host of rejected job applicants and tenants will soon be dragging them to court – in some cases with a legal protection insurance policy in their back pocket – over accusations of discrimination.  Because the burden of proof lies with the defendant and laying out one’s case in court is anything but easy, not to mention the threat of considerable fines if found guilty, many companies will choose to avoid the risk of a trial and instead try to buy off the plaintiffs before the case goes to trial. As a result, anti-discrimination law will soon descend into little more a trade in cash settlements, as is now common in cases of protection against dismissal, and then mutate into little more than an employment programme for lawyers and employment tribunals. What’s more, if the plaintiffs do win, companies and landlords may find themselves forced to deal with employees and tenants that they do not want. Whether that is compatible with the German constitution remains to be seen.