New rules could ban gender discrimination for pension annuities and car insurance premiums
Millions of men approaching retirement could be left thousands of pounds worse off if a European court rules on 1 March that insurance companies can no longer use gender to calculate annuity rates and insurance premiums.
Young women drivers will also be hit hard if “gender discrimination” is ruled illegal. An Association of British Insurers research paper claims some under-25s may face motor insurance increases of between 50% and 60% almost overnight – which could translate into an extra £500-£1,000 a year.
Many in the UK insurance industry believe it is likely the European court of justice (ECJ) will ban insurers from taking a person’s sex into account when setting premiums. Such a ruling would have huge ramifications for financial services firms, as it would also force a shake-up in life insurance and private medical insurance pricing.
Proposals for “gender equality” in insurance have been discussed for years. In 2004, the Financial Services Authority spoke out about the “threat” of a ban, warning that this would “override reality” and was “likely to hinder the development of an efficient insurance market”. Insurers have also long opposed the idea, highlighting the significant differences in the riskiness of men and women.
In the end, member states were allowed to opt out of an EU prohibition provided certain requirements were met, but the issue has continued to be controversial, and the court in Luxembourg is due to deliver its verdict on a test case by the Belgian consumer body, Test-Achats.
Women tend to pay less for motor insurance because they are deemed to be safer drivers, but because they have a longer life expectancy they fare less well than men when it comes to swapping their accumulated pension pot for an annuity – the product that provides an income for life.
Insurers and annuity providers have been getting their systems ready so they can offer unisex pricing from 1 March if necessary. Any ruling could apply immediately, though it is possible firms could be allowed a period of transition.
Some have already taken action – Canada Life decided not to offer a guaranteed period for annuity quotes issued between 25 February and 1 March because it felt it would be wrong to give customers quotes that were guaranteed into March, by which time the current way of setting up annuities could be illegal.
Young male drivers could see their premiums reduced by as much as 25% if a ban comes in, according to the ABI research paper, though some commentators believe it is unlikely that male premiums will fall much, if at all, in the short term.
“Because insurers will no longer be able to take gender into account, their overall approach to setting premium prices is likely to become more cautious, meaning it’s likely that drivers of all ages will be hit with further rises,” said Mike Hoban, marketing director at the website Confused.com. He added: “It’s possible that more young people will decide to drive without insurance if their premiums continue to rise.
An end to gender discrimination would, in theory, mean a better deal for women on annuities, as both sexes would receive the same annuity rates – but that would be very bad news for men. “Men could see annuity rates slashed by between 5% and 10%,” predicted investment firm Hargreaves Lansdown. This would probably put them at or near female rates.
Based on current annuity rates, that would suggest a 65-year-old man with a £100,000 pension pot could be worse off by £340 a year, or well over £8,000 if he were to reach the age of 90. Women, meanwhile, are likely to enjoy “only marginal improvements” in the amount of retirement income they receive, according to Hargreaves Lansdown.
But as most annuities are bought by men, wives who depend on their husbands’ retirement incomes stand to lose out because of a measure that is supposed to bring greater equality for women.
Need a Loan? Visit Secured Loans Broker.
View full post on Free Secured Loans Advice