Archive for the ‘Protection’ Category

Yesterday the European Court of Justice (ECJ) ruled that insurance  companies can no longer take  into account someone’s sex when calculating annuity rates and insurance  premiums.

The big headlines in the media have largely revolved around car insurance and the impact upon young drivers. Certainly, we will see big changes here with younger females being the group to be hardest hit. But, the long term implications for personal financial planning will be far more widespread with particular impact upon pension planning and life assurance, critical illness and medical insurance.

Pensions:

As things stand, on a like for like basis, men can buy and secure a higher income at retirement than women, because their expected longevity is lower, so their pension savings can produce more income over a shorter period.

But when gender is no longer taken into account, and unisex rates are applied this will be bad news for men, and equally for women who rely upon their partners pension fund for the major proportion of household income in retirement – which remains the case for the majority.

Where a man looks to purchase an annuity – a guaranteed income for life – with his pension fund, predictions indicate a drop in annuity income of somewhere around 5%, logically, putting them closer to the current female rates. Based on current annuity rates, that would suggest a 65-year-old man, who is a non smoker and in good health, with a £100,000 pension fund being worse of by approximately £325 per annum, or £8125 if he were to live to the age of 90.

Now we have this ruling, the Government Actuary Department (GAD) can move ahead and review the rates that determine the level of income an individual can drawdown from their pension fund, should they decide an annuity is not for them. The maximum income that can be taken when in pension drawdown is set to fall anyway with this ruling adding to the drop expected.

Life Assurance:

Gender is an important factor in setting premiums for life assurance – and also critical illness and medical insurance – with premiums, all other things being equal, being cheaper for females than males. So, protection premiums for females are going to rise and  they will fall for men, with the Association of British Insurers predicting a 20% rise for women and a 10% fall for men.

I’ve seen comments like “bonkers” “madness” and “seismic” used to express feelings about this ruling and yes it does seem to defy the law of common sense, but moreover, where is it leading and where will it end. If insurers and annuity providers cannot differentiate on the grounds of sex, how long will it be before there is a prohibition on using age to set annuity income or life assurance premiums, will a smoker be able to secure the same terms as non smoker or will someone with limited life expectancy be able to get protection on the same terms as a fit and healthy individual…

The fact is we are seeing yet more change and it will prove even more crucial for people to shop around and find the best solution for them and their particular situation.

The prohibition is effective from the 21st December 2012. Here is a handy summary of the judgement should you wish to read it.

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