EU Gender Directive and Annuity Rates FAQ

New European laws ensuring that companies treat men and women equally could have a lasting impact on annuity rates in the UK.

An annuity is purchased with a worker’s pension pot, usually turning a lump sum into guaranteed income throughout retirement.

What is the Gender Directive?

The Gender Directive is a piece of legislation that bars companies from treating men and women differently. While it once held an exception for insurance companies, which quote different rates for men and women based on statistics, the European Court of Justice ruled to take away this exception last year.

When does the Gender Directive take effect?

From 20 December 2012, insurance companies – and therefore, annuity providers – will no longer be able to give different quotes to males and females, offering unisex annuities instead.

Annuities purchased after 20 December will no longer have gender-specific rates. Men, who generally benefit from gender-specific rates, have the most to lose after the 20 December deadline.

How will this affect my annuity income?

Currently, men have an advantage on the annuities market, receiving around 5% to 8% higher annuity rates than females because they have shorter life expectancies.

Experts agree that men who purchase their annuities after 20 December 2012 will likely receive less income than those who retire before the Gender Directive deadline.

Some experts estimate the drop will be between 3% and 5%, because annuity rates are projected to first fall to female rates for everyone, and then rise again slightly so the midpoint between male and female rates.

However, HM Treasury has projected a drop as high as 13%, which means the deadline is serious for men who are planning to retire soon. Because of the Gender Directive, men who wait too long to purchase an annuity could see a substantial loss of retirement income.

Those who buy joint-life annuities would also be hurting their spouse’s retirement future.

Should I push up my retirement date?

Though the Gender Directive does pose a strict deadline on men who want to take advantage of gender-specific annuity rates, every future pensioner should take careful consideration before pushing up the date of their retirement.

There are many options in retirement besides annuities, and making drastic changes to carefully wrought retirement plans could mean being stuck with a product that is not right for you for the rest of your life.

At the same time, the threat of a fall in annuity income is real, and serious. Because of this, any person who is considering retiring within the next year should seek retirement advice from experienced independent financial advisers before the 20 December deadline to discuss whether or not to take advantage of gender-specific annuity rates.

The Gender Directive will have a profound impact on annuities, and the clock is ticking. With the help of a retirement expert, you’ll be able to understand whether or not to the frenzy over falling annuity rates is truly something to rush retirement for.

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