EU gender equality rules 'could cost men £10k' in annuity income during retirement, PwC claims



Future male pensioners could lose £10,000 from their income over their retirement under new gender equality rules coming into force on Friday.

Under the EU Gender Directive, firms will no longer be able to use a pension holder's sex as a factor when calculating annuity offers.

Currently men will typically get a higher annual income when they buy an annuity than women because they have a lower life expectancy. Providers can offer them more on the assumption payments will end sooner than for women.



Income headache: Men will get less from annuities under the new gender equal rules.

But from Friday this will no longer be the case, with women's annuity rates expected to rise and men's to fall.



PwC, using the Association of British Insurers' expectation figures, has calculated that any man who buys an annuity after December 21 could see his payout reduced by £10,000 over the lifetime of their policy as a result of the changes.

Raj Mody, head of pensions consulting at PwC, said: 'While a small number of women will be better off from the ruling, eight out of ten annuities currently sold in the UK are bought by men, so many more people risk losing out than gaining.

PwC calculations don't quite stack up

Adam Uren, of This is Money, says: PwC's calculation of is based on an assumed 8 per cent reduction in male annuity rates, after it found in an ABI report that annuity rates 'could fall by as much as 8 per cent'.

In a rudimentary calculation, it says that an 8 per cent reduction a year would see the income from an average pension pot of £100,000 reduce from £6,500 to £5,900 (though my calculation came to £5,980), which over a 17 year annuity life would come to a £10,200 reduction. We have since seen the UK's annuity providers cut men's rates by no more than 4 per cent, and in nearly every case much lower. A four per cent reduction on £6,500 would be £6,240, a reduction of £260 which over a 17-year period would come to £4,420. So this is significantly less than the PwC figure. However, the PwC calculation also doesn't seem to take into account escalation, so that £4,420 amount would grow each year, taking it towards the £10,000 amount originally stated. But with many men seeing a drop at this stage of around 1 to 2 per cent in annuity rates, those with a £100,000 pot would have to live a long time, or have inflation go through the roof in an inflation-linked annuity, before they begin troubling the £10,000 figure. Of course, the larger the pot, the larger the amount you will lose out on, hence why so many men have taken out gender specific annuities before the new rules came into force.

'Women who are beneficiaries of joint life annuities purchased by their male partner will also be affected as they will end up with a lower income.

'With annuity rates under even more pressure, it is more vital than ever that people shop around for the best rate and do not simply accept the rate offered by their pension provider.

'The difference between the best and worst annuity rates in the market can easily be around 20 per cent to 30 per cent.'



Not all annuity providers have announced what changes they will make to their rates yet, but those that have show the expected rise in women's rates and fall in men's.

Just Retirement has said its annuities for women will go up on average around four per cent, while men's rates will go down by three per cent.

Tom McPhail, head of pensions research at Hargreaves Lansdown, has said the ratio of male to female annuity applicants, which is usually two to one, has risen to four to one in recent weeks as men look to take advantage of non-gender neutral annuity rates while they still can.

Gender equality will also affect women who choose to take their pension through income drawdown, rather than buying a lifetime annuity.

Income drawdown allows pensioners to take a capped yearly income from their pension pot, which would otherwise stay invested.

The amount you can draw down is based on the Government Actuary's Department (GAD) rate, which is based on male rather than female income factors.

Women could receive a double boost to their income as not only should their drawdown be uplifted based on the gender equality changes, but the Chancellor George Osborne announced he would be reversing the decision made in April 2011 to cap the amount you could draw down from your pension at 100 per cent of the GAD rate, restoring the old 120 per cent rate.

But with no date yet set for when the 120 per cent rate returns, Skandia pension expert Adrian Walker is urging women to check whether their income drawdown contract can be reviewed on an annual basis.

He said: 'There is a real opportunity for women using capped income withdrawal to receive more income from their savings next tax year.

'When the start date of the new uplift is announced it won’t have immediate benefit to all, so it’s important that people are aware of the options available to them.