Men could be facing an annuity income drop as high as 10% next month as new EU-backed legislation forces insurers to lower their rates. The new laws mean that insurance companies can no longer ‘discriminate’ on the basis of gender, and must offer equal rates to both men and women. Hitherto, in some cases individuals have benefitted from insurance if they were female. For example women have historically been offered more competitive car insurance quotes based on the fact that women, statistically, have fewer road traffic accidents than men. This lead to a burgeoning industry of specialist women-only car insurance providers. However after December 21 this year, the practice will be outlawed, meaning women drivers are likely to see their premiums rise as a consequence. Conversely however, the new rules will mean that female annuitants are likely to see their income rise slightly, because at the moment they are offered lower annuity rates than men based on the fact that they (on average) live longer in retirement. It is not so good news for male annuitants though who are likely to see an income drop of up to 10% as insurers absorb the cost of equalising rates.
The reason why the legislation came into existence was to eliminate inequality in the insurance marketplace. The problem is that, in the annuity market at least, the new rules will only serve to make most people worse off as the majority of annuities are purchased by men for themselves and their partners. As male annuity rates become ‘unisex’ annuity rates, men could see a drop in the income offered of up to 10% or more, depending how providers handle the changes. So in the name if inequality, at a stroke, the new rules will make the majority of people poorer in retirement – referred to as the rule of unintended consequences.
Now it has been established rates are going to drop if not fall off the proverbial cliff in December, the question is what (if anything) can be done about it? Well, regarding the rates themselves the answer is not a lot. What you can affect is your own choices including comparing rates and selecting the best product, be that an annuity or otherwise. If you are looking for some basic facts about what an annuity is and how you can compare rates then check out 123annuityrates.co.uk which offers a good introduction. If you have a larger than average pension fund (over £100K) you may also want to think about whether it is worth paying for a financial advisor.
One final point to note, if you do want to buy an annuity this year don’t assume you have up until the 21st of next month because you will need to return documentation well before this date, so start looking now. Some providers will stop taking new applications well before the cut of period and there could also potentially be delays in getting your fund transferred so don’t hang around.