Annuities for men at risk of 10% cut

Men nearing retirement are being advised to buy a pension annuity now, in case an impending legal ruling removes their more advantageous rates.

Currently, the annuity rates offered to men are up to 10 per cent higher than those offered to women because insurers price in the fact that men do not live as long as women. However, on March 1, the European Court is due to rule on whether the use of gender to calculate insurance premiums – including annuities – is in breach of sex discrimination laws.

If gender-based pricing is banned, it will affect other areas of insurance, such as motor cover and life assurance, but men securing their retirement income through an annuity could take the biggest hit if unisex rates are introduced.

“If, as expected, the court rules that gender discrimination is illegal for annuity pricing, then investors could find unisex rates replacing gender-based rates overnight,” warned Tom McPhail, head of pensions research at Hargreaves Lansdown, the independent financial advisers. “Men could see their annuity rates slashed by between 5 per cent and 10 per cent.”

Hargreaves Lansdown has written to tens of thousands of its clients nearing retirement alerting them to the threat to their income prospects. “A male planning on buying an annuity in the next few months might want to get on with it,” explained McPhail.

While men would be the losers from unisex annuity rates, women are likely to enjoy improved pension incomes.

“I would expect that rates for single-life annuities for women would improve by about 5 per cent if unisex rates are imposed,” said John Lawson, head of pension policy with Standard Life, the insurer. “Females might considering holding off purchase until after March 1.”

However, women are likely to face increased rates for life assurance and motor insurance. “Young women drivers pay premiums that are up to 50 per cent cheaper than their male peers’ because they are proven to present a much lower risk to insurers,” said Simon Douglas, director of insurance with the AA. “I expect premiums to increase substantially for them, while they will probably fall for young men if unisex rates are introduced.”

Douglas added that anyone thinking of buying insurance now should perhaps take the potential changes into account when timing their purchase.

“Young women might well be advised to buy now to take advantage of lower premiums while they last, whereas men are more likely to benefit by delaying their decision until any announcement is made,” he explained.

Insurers said that if the European Court outlawed gender-based pricing, rates could change overnight. It would also mean that quotes issued before March 1, based on gender, would not be legal.

“You cannot rule out annuity and insurance rates changing overnight,” said Robert Morfee, partner with Clarke Willmott, the solicitors.

“If the court says it is illegal to take the sex of the insured person into account as a risk factor, then it will be illegal from that point forward – and the court’s ruling cannot be appealed against.”

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