By Claire West
Following last week's recommendation of a 25% quota for women in boardroom roles, gender equality again hits the news in anticipation of a European Court of Justice ruling. Men could see their annuity rates fall by up to 4.73% and women's rates could rise by nearly 8% if the European Court today rules against different pricing for men and women.
The same ruling that could see men and women paying the same rates for their car and life insurance could mean the use of gender as a risk factor to calculate annuity rates similarly becomes a breach of sex discrimination laws, MGM Advantage, the retirement income specialist, reveals. Men could see their retirement income fall by up to 4.73%. In contrast to this, women could see their income increase by as much as 7.77%.
Men currently receive higher annuity rates than women as a risk factor because statistically they don’t live as long. MGM Advantage estimates that if calculations using gender are no longer permitted, men and women will receive a ‘unisex’ rate which, in general is lower than the rates offered to men, but higher than those provided to women.
The Mutual has taken the average rate of the top three annuity providers for men and women across both conventional and enhanced annuities for four different age groups of potential customers (60, 65, 70 and 75), and two different amounts of money (£25,000 and £50,000), and calculated the percentage difference when compared to the average unisex rates.
A man buying a conventional annuity at 75 with £25,000 and receiving the average income of the top three providers for example, would get £2,182.40 a year, which is 4.73% or £98.52 more than he would receive from a unisex conventional annuity.
The findings also reveal that a man aged 75 with a mild heart condition buying an enhanced annuity with £50,000 and receiving the average rate of the top three providers would currently get £5,271.84 a year. If he received the current unisex rate, he would lose 3.9% or £197.69 a year. That will mean he misses out on almost £1,400 if he lives to average ONS quoted age of 82.
However, women could see an increase in their annuity income if unisex rates are applied. For example, a 70 year old woman with a mild heart condition buying a £50,000 unisex enhanced annuity would currently receive 7.77% (or £341.13) more than an enhanced annuity calculated on the basis of gender. That’s an extra £5,100 over the course of her retirement than before the ruling.
Aston Goodey, Sales and Marketing Director, MGM Advantage comments, “The annuity industry has been moving towards pricing that is far more individual and therefore fairer to the customer. While this gender ruling would create winners and losers, the truth is that it’s another blow to the conventional annuity and thousands of people approaching retirement. The downward trend in annuity rates is forcing more and more people to look at other options such as flexible annuities in order to stand a chance of making their money last in retirement.”