The European Court of Justice (ECJ) is due to rule on 1st March whether the use of gender as a risk factor to rate policies is compatible with European human rights on gender discrimination.
Annuity providers in the UK use a wide variety of factors when deciding on their Annuity rates, one of the most important of these is gender. Men have a shorter life expectancy than women and therefore tend to get higher Annuity rates.
If the ECJ rule that a person’s gender cannot be used as a factor in Annuity pricing it will be illegal to do so and the decision may need to be implemented immediately by Annuity providers here in the UK.
No one knows which way the ECJ will rule, however some Annuity providers have started to plan for a change. John Occleshaw, Managing Director of Individual Business at Canada Life says “We think there’s a strong possibility that the ECJ will say you can’t use gender to price annuities and it’s effective immediately”.
Such a decision would see unisex Annuity rates being implemented in the UK.
So what could this mean for my Annuity?
If you have already bought an Annuity nothing will change, the decision cannot be imposed retrospectively.
If however you have not yet bought an Annuity and the ruling on 1st March says that gender cannot be used as a factor in setting Annuity rates you will be affected.
We will see an equalisation of Annuity rates, which for men means we are certain to see Annuity rates fall as the fact that men have a shorter life expectancy will not be taken into account when setting Annuity rates.
Women will also be affected as they will receive lower spouse’s pensions in the future should their husband die before they do.
How should this affect your planning?
It is hard to give sweeping guidance on this as clearly no one has any way of knowing which way the decision will go.
If you were planning to purchase an Annuity in the very short term it may make sense to move forward with the purchase as quickly as possible, just in case the decision does mean an introduction of unisex Annuity rates.
However, it is also wise to avoid knee jerk reactions. The ECJ may rule that a person’s gender can still be taken into account and even if they don’t providers may be given sometime to implement the ruling.
One thing though is definite, if the ruling does go in favour of unisex Annuity rates income for men from Annuities will fall.
Such a fall will have a number of effects, it should encourage more people to take advice and to shop about for the best possible Annuity rate, it may also encourage people to consider other methods of taking an income from their pension funds.
Take advice now
If you are thinking of buying an Annuity or you wish to discuss this article in more detail please do not hesitate to contact one of our advisers.
Our advisers are here to help you and can be contacted on 0845 074 778 or 0115 933 8433, alternatively you can email them at firstname.lastname@example.org