ECJ gender ruling – pensions industry reeling at lower incomes and uncertain future

The pensions industry faces uncertainty and lower incomes across the board as a result of today’s European Court of Justice’s ban on gender underwriting, say experts.

But the PMI and group risk sectors are expected to be largely unaffected by the change because they usually underwrite on unisex grounds.
Pension experts are warning that annuity rates will be overall worse for everyone across the board by December 2012 when the new rules are implemented because of the combined effects of the unisex underwriting rules and Solvency II.
Alexander Forbes says male annuity rates will be between 4 and 5 per cent worse as a result of the gender equality change.
Law firm Sacker & Partners say the ruling will cause an administration headache for insurance schemes and uncertainty for pension schemes, as because the ruling applies specifically to insurance, it is unclear whether it applies to the occupational pensions sector.
The Association of Medical Insurance Intermediaries says the PMI sector will only be affected in a handful of cases, however.
Zoe Lynch, partner at Sacker & Partners says: “The ECJ has confirmed what we suspected – the use of sex-based actuarial factors will be outlawed for setting insurance contracts. The ECJ have given the industry valuable breathing space – by hanging a delay onto a transitional provision hook, they have given the industry until 21 December 2012 to work out what it all means.
“The ruling does seem to anticipate that all insurance contracts will need to be examined – not just those entered into after that date. A massive administration exercise leading to tension headaches all round. This will apply to annuities purchased to provide an pension income as well as simpler short-term insurance products such as car insurance.
“As it expressly refers to the insurance sector – occupational pension schemes will be wondering how the ruling will apply to them, and whether they can continue to use actuarial factors for their own purposes”.
Dr Ros Altmann, director general of Saga says: “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. 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 ten annuities sold in the UK and all of them risk receiving much lower pensions as a result of this decision. This means that future UK pensioners will be even poorer than they otherwise would be. If an insurance company does not know whether the person buying the annuity is male or female, it is inevitable that they will increase the risk margin ’just in case’ they are selling to a woman, so men will all face potentially worse annuity rates and, therefore, will receive much lower pensions for the rest of their life.”
Darren Philp, director of policy at the NAPF says: “While it is right that annuity providers should not arbitrarily differentiate between men and women, the data shows that there is a clear difference between them when it comes to longevity.
“It is therefore perfectly reasonable for annuity providers to offer rates on the basis of this difference, as long as it is based on clear evidence.”
Lindsey Joseph of AMII says: “The vast majority of PMI insurers don’t have different premiums for gender and for those that do, the difference in premium is not significant. However, there are a couple of insurers who have used gender pricing in the past and so have older policies on the books that would need to be adjusted from 21 December 2012. For those consumers, they should seek specialist advice on alternative options within the market, especially if continuous cover is required for previous medical conditions.”