THE QUESTION: Is the European Court of Justice right to ban gender underwriting?
Maggie Craig, acting director general ABI
No. This gender ban is disappointing news for UK consumers and something the UK insurance industry has fought against for the last decade. The judgment ignores the fact that taking a person’s gender into account, where relevant to the risk, enables men and women alike to get a more accurate price for their insurance.
It will be crucial to ensure this news does not put people off having vital insurance that protects them against accident or illness, or provides an income in retirement.
Adaptation during this transition period until December 2012 will be challenging, but all insurers will be doing everything they can to ensure as smooth a change as possible for customers.
Research we commissioned carried out by Oxera in autumn 2010 highlighted that men approaching retirement could see an 8 per cent reduction in annuity rates while rates for women approaching retirement could rise by 6 per cent.
For life insurance: women could see a rise of as much as 20 per cent in the cost of cover, while men could see a fall of 10 per cent.
Dr Ros Altmann, director-general Saga
No. This EU ruling will push more middle-class UK pensioners into poverty as annuity rates will worsen for all, just as automatic enrolment starts.
The European Court has dealt a further future blow to Britain’s already struggling pensioners. In defiance of common sense and logic, insurers will be barred from pricing their products on the basis of risk. The delay to 2012 is a bit of relief, but not much comfort for those who will be affected. And of course 2012 is the year that the UK will start to automatically enrol all workers into pension schemes.
Annuities will become more expensive as four-fifths of annuities are bought by men: This means that annuities will become more expensive for the vast majority of buyers. Currently, men buy around eight out of every 10 annuities sold in the UK and all of them risk receiving much lower pensions as a result of this decision.
Women’s annuity rates are unlikely to improve by much, especially as the majority of annuity purchasers are men.
Gary Tansley, senior consultant at Hamish Wilson
No. From an actuarial perspective, it is hard to see the logic behind banning the use of a risk factor that can have a significant bearing on the cost of providing insurance.
Occupational pension schemes are better placed than insurance companies in that they have a well-defined membership and so are less exposed to the risks of selection. In many cases it should thus be possible to minimise any extra costs that may arise from being forced to ditch gender-based actuarial factors, although careful thought will be needed when setting unisex factors.
However, exceptions include schemes that have commutation rules that require the actuary to certify that the lump sum represents equivalent value to the pension foregone, in which case levelling-up to female factors may be required.
Schemes that allow pension to be surrendered in favour of spouses and/or dependants may seek to discontinue that option. Even if unisex factors have to be used when members exercise options, it should still be possible to continue to use gender-based mortality tables for valuation and funding purposes.