Gender equality and pension annuities

You’ve probably heard all about the ruling which outlawed the use of gender-based pricing in insurance – but did you realise that it could also impact your pension? Is it right to make annuities gender equal?

As we discussed in a previous Conversation, this ruling will have a substantial impact on the price we pay for insurance in years to come.

Young men, for example, currently pay much more for their car cover than young women, as they’re statistically more likely to be involved in an accident.

But older women tend to pay more for cover than older men, as in later life the statistics reverse. Under the new rules, these differences will have to be eliminated.

Should insurers take gender into account?

Your responses proved that this is a contentious subject. ‘The ruling is implementing rationality into the insurance models, which the insurers are not capable of doing,’ said Mark.

But Brian disagreed. ‘No, the ruling is actually removing rationality from the insurance models. It is quite irrelevant why women make less claims (drive less, more careful, cheaper cars, etc) only that they do,’ he argued.

However, when it came to our poll, there was a clear winner, with nearly three-quarters saying that insurers should take gender into account.

Still, given that car cover is something that we renew annually, there’s not much that can be done to avoid the change. Young women, for example, won’t be able to lock in the benefit of being at a lower risk before the new rules come into force.

But when it comes to other types of insurance, being prepared for the changes could make a significant difference.

Don’t lose out on your annuities

One of the biggest impacts will be the equalisation of pricing in the annuity market. Annuities turn your pension pot into an income for the rest of your life – so making sure you’ve got the best possible deal is essential, as you can’t renegotiate once you’ve made your purchase.

Currently, men get a slightly better deal than women, as statistically they live shorter lives. So a non-smoking woman retiring at 65 today with a £100,000 pension pot could get an annuity that would pay her £557 a month for the rest of her life. Yet a non-smoking man of the same age, with the same size pot, would get £588 a month.

Once the new laws come into place next year, these differences will be removed – and it’s likely that rates for men will fall. If rates equalise then men will need a pension of around £102,500 to buy the same income as they’d get for £100,000 today.

So, if you’re a man approaching retirement, it’s worth considering buying an annuity before the new rules come in. If your current provider offers a poor deal, the difference could be made up by shopping around or taking independent financial advice. The question is: are you concerned enough to bother?

richard says:

12 April 2011

If you are a teacher – your pension is independent of gender – as is the salary. But teacher pension was always a social pension – that is it considered the social needs of the pensioner foremost – and the reason why the contributions are higher than in the private sector . Equally “final salaries pensions” were used because it was one good reason for working hard for promotions – now that incentive has been destroyed by this appalling “government” – there is far less reason to work hard. Conditions are going to get worse – It is the Tory way.

Equal pay for teacher’s gender has been around for many decades

Business only considers the need of the business – and applies benefits only when forced to by law – which is why so many businesses do not contribute to any private pension – leaving it to the individual and government.

Private pensions are a business – they demand a profit. So to maximise profit any and all conditions that affect that profit are factored in – be that life expectation or gender. Statistics show conclusively that women live longer so business sense states for the same insurance pot – women must be paid less.

However the EU says no – all will be paid the same – so to maintain profit margins – men will be paid less to compensate – so men suffer. Not the rich of course just working men

My worry is that genetic trends will be considered as a means to maximise profit though this is not allowed at the moment. But this “Government” also stated NHS and Schools would be untouched – Pensions are the last “fat cow” to be milked..

The problem is also private Insurance companies can go broke – leaving the pensioners far far worse off – as has already happened.