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Annuity industry shaken by European ruling on gender

Women will get higher annuity rates but at a potentially greater cost after a ruling on gender pricing by the European court of justice, according to the acting chairman of the Annuity Clearing House.

By Aamina Zafar | Published Mar 03, 2011 | comments

In response to the decision that there should be equality in gender pricing for products including annuities and insurance policies, Peter Quinton predicted that women’s annuity rates would increase, while the cost of men’s annuities would decrease.

The court said: “The directive prohibits the use of gender as a factor in the calculation of insurance premiums and benefits in relation to insurance contracts entered into after 21 December 2007. The EU aims, in all its activities, to eliminate inequalities and to promote equality between men and women.”

Mr Quinton said: “Couples will be worse off than they are now. Taking gender out of the equation is a negative thing for annuities because these are based on your life expectancy and your gender does have an effect on that.”

Ken Wrench, chief executive of London & Colonial, said: “This decision will kill male annuity business in the EU. Men who will get less from their annuity will go through a qualified recognised overseas pensions scheme outside the EU to get the best deal.”

Billy Mackay, marketing director of AJ Bell, said a man with a pension pot of £100,000 could be almost £700 a year worse off under this ruling, and nearly £12,000 worse off over their predicted lifetime.

Ros Altmann, director general of Saga, said worse annuity rates would be detrimental as auto-enrolment starts.

She added: “The court has dealt a further blow to Britain’s already struggling pensioners. In defiance of common sense and logic, insurers will be barred from pricing their products on the basis of risk.”

Tom McPhail, head of pensions research for Bristol-based Hargreaves Lansdown, predicted that the changes would lead to a growing demand for alternatives to lifetime annuities, such as drawdown.

He said: “This ruling is a seismic event that will reshape the retirement landscape. It is imperative that every investor shops around with their pension fund at retirement. If they do not, they risk ending up with a homogenised, standard–issue annuity which is almost certain to be a poor deal.”

Martin Shaw, chief executive of the Association of Financial Mutuals, said that, despite the initial upheaval, annuities could improve.

He said: “In the short term there may be some negative effect on the cost to the consumer but markets such as annuities are competitive and over the longer term insurers will develop more sophisticated techniques on which to base their assessment processes.”

Maggie Craig, acting director general for the Association of British Insurers, said the ruling could deter people from buying insurance.

She said: “For annuities, men approaching retirement could see an 8 per cent reduction in annuity rates while rates for women approaching retirement could rise by 6 per cent.”

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