Following a landmark ruling from the European Court of Justice, as of December 2012, it will be illegal to price insurance products based on gender. Under the new rules the whole insurance industry will have to revolutionise how products, including annuities, life insurance and health insurance, are priced
- How this will affect you and your retirement:
On reaching retirement, most people choose to buy an annuity with their pension fund, guaranteeing them an income for life. Currently, the annual income they can buy with their retirement pot depends on how long they are statistically likely to live; taking into account age, gender and health.
According to the latest figures available from the Office of National Statistics, in 2010 the average life expectancy for women was 82.3 years, whilst for men it was 78.2 years.
A woman would typically be offered a lower annuity rate than a man would with the same sized pension fund. As of December, all rates will be equalised, somewhere between the higher male rates and lower female rates for annuity purchases. Joint annuities, which at present are more likely to be purchased by men, are also likely to become more expensive. That means that women who rely on their partner’s pension pots will also suffer a lower income in retirement.
The impending change in regulations could result in an annuities ‘closing down sale’, with large numbers of men rushing to purchase annuities to take advantage of the higher annuity rates on offer before December.
With this change in mind, anyone looking to retire in the near future should carefully consider the options available to them before December.
- Options available:
Much of the downward pressure on annuity rates is out of your control, but there is something you can do to help achieve the highest income available to you.
A large majority of people facing retirement are not exploring the Open Market Option (OMO), largely because they are not aware of it or its benefits. The OMO option allows anyone looking to utilise their pension fund the opportunity to browse the whole retirement market, not just their current provider, for the right product and most competitive rates.
More often than not, this can lead to a significant increase in income potential. It is estimated that more than two in three retirees do not explore the open market. This failure could result in decreases to their income by 15% or more.
So, at a time when annuity rates are declining, exploring the OMO road may at least help to soften the blow.