Leading annuity providers are considering cutting guarantee periods in advance of the ban on gender based pricing for insurance products. From December 21st this year it will be unlawful to price insurance products based on a person’s gender because of an EU directive which deemed the practice discriminatory. Guarantee periods ensure that the income from an annuity is protected in the event of the annuitant dying prematurely within the guarantee period. Matt Trott who is head of annuities at LV= said… “…a gender-specific guarantee period cannot go beyond December 21 so providers have two options. One is to introduce gender-neutral prices early and the other is to reduce guarantee periods.”
Gender pricing was a controversial introduction into the annuity market as the majority of annuities are bought (by men) for themselves and their partner/spouse. Only single women are likely to see a slight increase in annuity rates, but they only make up 20% of all annuitants. LV= themselves offer a guarantee period of 30 days with L&G offering a period of 30 days. Annuity expert Billy Burrows argues that there needs to be an “orderly transition” as well as a “clear timetable” before the cut off date.
For more information about the impact of the ban on gender-pricing, check out this article by Mr Burrows which takes a comprehensive look at what the effects will be. One other point to add is that not only will the partner’s of male annuitants see a drop in annuity income (around 5%) but they will also feel the effect of a drop in the income paid from joint-life annuities. So whilst the bureaucrats in Europe, to coin a phrase, alter the law in the name of equality, in reality all they are doing is lessing the living standards for the majority of retired women, unless they are single that is. Another possible consequence of the ban could be that level annuities become less appealing as the rates will have fallen, with more attention being focused on investment-linked annuities and drawdown.
