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No sex please, we’re European

From 21 December new EU rules will ban insurance companies from taking a person’s sex into account when calculating costs. We look at the affects on people approaching retirement.

When people retire, the majority will choose to secure a future income by purchasing an annuity.

The amount of annual income that you can buy will vary depending on a number of factors, primarily the size of your pension pot.

At the moment, these factors also include whether you are male or female.

But this is about to change due to EU legislation known as the gender directive.

The importance of gender

Gender plays an important role in the insurance business as there are a number of statistical differences between men and women that insurers look at when calculating premiums.

When it comes to annuities, at present they tend to be cheaper for men. This is because insurers price in the fact women generally live longer and so annuities have to be paid out over a longer period.

Annuity rates for men are currently around 5 to 8 per cent better than those for women, according to retirement specialist LV=.

However, the EU has ruled that discrimination on grounds of gender is unfair.

So from 21 December, insurers will no longer be able to take gender into account when setting annuity rates.

How will this affect retirees?

Annuity rates could fall 3 to 4 per cent for men, while women’s rates could increase by 1 to 2 per cent, according to retirement income company MGM Advantage.

Therefore a man may believe it is best to buy an annuity before the gender directive comes into force in the hope of achieving a higher income.

"However, this decision should not be rushed into," says an LV= spokesman.

"An annuity purchase is for life, so it is just as important to ensure that the product is right, as it is to maximise the annuity rate."

What should female retirees do?

Meanwhile, women may be tempted to defer buying an annuity until after the gender directive takes effect.

However, this is not a risk-free decision.

It is difficult to say what rates will be offered immediately after the rule change comes into force.

Also women should consider the income they would miss out on in the meantime.

Take an income when you need to

Because it’s difficult to say exactly what will happen after the directive comes into force, Andrew Tully, pensions technical director at MGM Advantage, believes people should generally take an income when they need to.

And once that point comes, they would do well to consider a range of income sources, including options such as income drawdown, where money remains invested in the stock market, but regular withdrawals are made.

Tully said: "Individual circumstances, including the need for income and capital, other sources of income you may have and whether you will continue to work in some capacity will all play a part in the decision of when to take an income.

"It’s also important people realise they don’t need to take their entire pension at once.

"Instead, they can take it in chunks, known as ‘phasing’, if they only need a small amount of income initially."

Shop around for the best rate

If you do opt for an annuity, the advice from the experts is that it’s crucial to shop around for the best rate.

And it’s equally important to tell providers of any medical or lifestyle issues as this could increase the income you get.

Even relatively minor conditions such as high blood pressure can increase the income you get by as much as 40 per cent if you qualify for an enhanced annuity.

And if people are confused about their retirement income choices, they can speak to a financial adviser who can advise on all the options available, before and after the gender directive.

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Adam Jolley

Adam Jolley

Adam Jolley is a content producer at He joined us in May 2012 from the world of financial services PR.

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