Men and women will have to be treated the
same when it comes to annuity rates
We have provided answers below to some of the questions asked about how from this date it may affect enhanced annuities, investment-linked annuities and fixed-term annuities.
Q: What is the Gender Directive?
A: The European Court of Justice ruled last year that the current exemption to the Gender Directive, which allows gender-specific pricing for insurance contracts, is not consistent with the EU’s long-term principles of equality.
As a result, from 21 December 2012, it will not normally be lawful to offer clients different insurance rates for males and females. This means that annuities will generally need to be written on unisex terms.
Q: What is the scope of the Gender Directive?
A: The Gender Directive relates to contracts taken out by individuals. Any member purchasing an annuity from Defined Contribution Schemes using their Open Market Option would fall within the scope of the Directive.
Q: Why will it affect annuities?
A: From 21 December 2012, providers will no longer be able to use gender as a factor when determining annuity rates offered to individuals.
Annuity providers currently assume that males generally have shorter life expectancies than females. This is the reason that males are normally offered better annuity rates than females. In future, males and females must be provided with the same annuity rates. This means that annuity rates are likely to fall for males, but could improve for females.
Q: How will providers calculate their
unisex annuity rates?
A: Annuity providers are likely to calculate their annuity rates by ‘blending’ their male and female rates. This means that their unisex annuity rates are likely to fall somewhere between their current male and female rates.
Exactly where the unisex annuity rate ends up will depend on how much weighting each provider gives to its male and female rates. This will be determined by the proportion of the business they expect to write for each sex.
For example, if a provider expects a large proportion of its business to be written on females (as is likely to be the case in the immediate aftermath of G-Day), their unisex rate will be weighted more towards the female rate. This would result in a bigger drop for male annuity rates and little gain for females. On the other hand, if a provider expects more of its business to be written on males, their unisex rate will be weighted more towards the male rate. This would result in a smaller drop in male annuity rates and a bigger gain for females.
Q: Why will it affect pensions?
A: From 21 December 2012, providers will no longer be able to use gender as a factor when determining the Government Actuary’s Department (GAD) maximum available to individuals.
The Government Actuary’s Department currently has separate tables for males and females due to differences in life expectancy. This is the reason that males are normally offered higher GAD maxima than females. In future, males and females must be provided with the same maxima and HM Revenue & Customs has confirmed that for the time being that will be the current male table. This means that the maximum income rate will stay the same for males, but improve for females.
For new business, cases completing on or before 20 December 2012 will be subject to the current GAD tables; for those completing on or after 21 December 2012, both males and females will be subject to the existing 2011 table for the male rate.
For existing pensions business, cases that have reviews where the reference period starts on or after 21 December 2012 will be dealt with using the gender neutral GAD table even where the calculation is done using a nominated date up to 45 days prior to that date.