As a result of Test-Achats, which is a Belgium consumer protection agency challenging whether it is legal for insurance companies to discriminate on the basis of gender, the European Court of Justice has ruled that from 21st December 2012, all new insurance contracts implemented across the 27 European Union member states, must not use gender to determine insurance premiums payable or benefits granted. This encompasses annuity rates.
EU Ruling Impacts Insurance Premiums & Annuity Rates
Traditionally women have paid lower insurance premiums and have received a lower annuity rate due to the fact that on average, they will live longer than men. The idea is that the insurer will receive a higher number of premiums over time, so can charge a cheaper rate and they provide a lower pension income because they’re going to have to pay out for a longer period of time.
After the ruling takes effect, women and men must pay the same premiums and receive the same pension income.
How will this affect me?
If you are a woman and you’re considering using your pension funds to purchase an annuity, provided you can afford to, it may be sensible to defer your annuity purchase until after 21st December as you may receive a higher income.
However if you are considering purchasing insurance, including life assurance, critical illness cover and income protection, it would be advisable to do this before December because your premiums are likely to increase.
If you are a man, the general consensus is that your annuity income will decrease somewhere between 3.5% and 13% after the unisex rates are implemented. The advice is, rather than wait to set up your annuity, capitalise on the higher rate you will receive now. Conversely, your insurance premiums may reduce but this is not guaranteed at all.
Taking an annuity early or alternative deferral isn’t a fool proof method as annuity rates are very hard to predict. They will go up and down in line with Government Bonds (Gilts) and Corporate Bonds.
Equally insurance premium rates are not guaranteed and it is important to note that the older you are when you apply for life cover, the more expensive it usually is.