Most normal people, and I'm assuming you're one of them, don't wake up in the morning thinking about the Treaty of Lisbon. Neither do most people wake up thinking about annuities. So I would be doubly surprised if anybody (apart from a few pension geeks) woke up today thinking about the Treaty of Lisbon and Annuities in the same thought.
But from 1st March these two seemingly separate things could have a significant and detrimental impact on retirement income. It looks as though men will be hit quite hard, but so could married couples, particularly where the majority of retirement income will come from the man's pension. Before I get everybody's blood pressure up I should point out that if you're already retired and have purchased an annuity with your pension funds, this isn't going to affect you. Relax and enjoy the rest of the day.
For everyone else, here's the story. In September 2010 Dr Juliane Kokott, an Advocate General in the European Court of Justice argued that using a person's gender when underwriting insurance policies was actually sex discrimination, and therefore did not comply with the provisions contained within the Charter for Fundamental Rights.
I had better take a couple of steps back to give you some background. When an insurance company wants to calculate how to charge for a life insurance policy, it will take into consideration a variety of different things, the age of the person, the medical history and the gender. The same happens when working out how much income to pay someone in exchange for their pension fund.
The older a person is the shorter their remaining lifespan, this means that a higher level of income can be paid. Likewise, if someone is in poor health they have a shorter lifespan, and consequently the more income that can be paid. Finally, because men are statistically likely to die at a younger age than a woman, they too receive a higher income because the pension fund does not need to last so long.
Age, health and gender have been legitimate factors in the calculation of insurance, risk and annuity returns but now an unintended consequence of the Treaty of Rome will mean the majority of people will be worse off.
Nature has little regard for the Treaty of Lisbon so unfortunately men, we're still more likely to die at a lower age than women. This means that if insurance companies are compelled to offer same sex annuity rates, the age expectancy for men will rise (on paper rather than in real life), and their annuity income will decrease. That will hit their pockets with a reduction in income of around 5% being talked about, though some commentators have suggested there will be a 13% difference. Put another way, a £100 income payment could fall to between £87 and £95, neither of them a favourable outcome.
The ruling will be announced on March 1st, but many insurance companies have already started to withdraw their current annuity rates in favour of unisex rates. This is because the 14 day acceptance period for annuities would take them beyond the 1st March.
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