City Trustees - part of Mattioli Woods



News and Media

04 December 2012

Time for change: introducing gender neutral rates

On 21 December 2012, a date now known as G-Day, a change in law will introduce gender neutral rates. The changes, brought in by the European Court of Justice earlier this year, ruled that "insurers cannot charge men and women purely because of their gender" claiming that "the principle of equal treatment between men and women is a fundamental 'treaty' right".

Whilst men can expect to see drops in premiums of general insurance, the unisex annuity rates will offer women the possibility of increased income in retirement.

In preparation for G-day, HMRC has confirmed that all drawdown calculations should be calculated using the higher male rate for both men and women aged 23 and over. Although this is subject to change in the future, it lends itself to planning opportunities for women, both in drawdown and those preparing to start drawing their pensions.

Across a range of ages and based on current gilt yields, the effect of this policy decision will increase the maximum available income under capped drawdown rules for females by about 7 to 8% . By way of an example: based on a gilt yield of 2, the maximum income that could be purchased by a drawdown fund of £100,000 would, for a female aged 60, increase from the current £4,300 a year to £4,600 a year - an increase of 6.9%. For a 65 year-old female, the current maximum of £4,900 would rise to £5,300, an increase of 8.2%.

Any female clients already in income drawdown will move onto the new rates at their next review (which will be either five or three years, depending on when their last review was undertaken). To take advantage of the changes sooner, it is possible to review income payments annually on the pension anniversary, if the provider offers member-driven annual reviews.

For women considering drawdown in the very near future, it may be worth waiting until after G-day to benefit from the increased rates. Likewise, a male approaching retirement should consider whether it will be better to purchase an annuity before the changes take effect.

For annuities and other types of insurance policies (such as life assurance and critical illness cover) the ECJ ruling only affects policies issued on or after the 21 December 2012 deadline, although there could be certain scenarios where policies effected before this date are affected. For example: some policies have 'reviewable' rather than 'guaranteed' premiums.

In summary, G-day will create an opportunity for women to increase their pension income significantly at a time when the underlying economic climate has seen gilt yields fall to record lows, greatly reducing the retirement income of many.

John Glover
Business Development Manager

 

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