BLOG: Is the EU really fairer to the fairer sex?
The next phase of the long running saga introducing gender-neutral annuity rates is fast approaching.
But the position is far from certain with many complexities sure to exist after the changes take place.
Rather than having different rates for males and females, standard annuities will have one gender neutral rate from 21 December. This is likely to mean male rates fall 3% to 4% and female rates edge up slightly by 1% or 2%. Therefore, male clients wanting to buy an annuity may believe it is sensible to do so before December.
However, buying an annuity solely because of the gender changes may not be the right decision. Rates could, after all, spike up in future due to gilt yield rises or competitive pricing.
Somewhat bizarrely, standard annuities bought by those in occupational pension schemes (OPS) are not affected by this ruling.
For example, a female in an OPS may benefit by transferring to a personal pension before buying an annuity as they will move to gender-neutral rates.
Underwritten annuities may not be affected to such a degree as standard annuities.
This is because the risk assessment element of pricing takes into account a whole range of factors besides gender, such as health, occupation and postcode. So, while there may be some tweaks to pricing, rates may not move across the board in the same manner.
Currently there are different Government Actuary Department (GAD) tables for male and female drawdown customers, but this would breach the new rules
This put HM Revenue and Customs in an awkward position as it needed to give providers new GAD tables in sufficient time for system changes to take place. However, GAD rates are based on market annuity rates and we don’t know what gender neutral rates will be until after 21 December.
So, from that date, everyone will use what are currently the male GAD tables, which is a pragmatic solution. This means females who take out new drawdown contracts will be able to take a higher income than would otherwise have been the case.
For drawdown arrangements already in place, a similar increase may kick in at the next review or an earlier date if there is some other change which means income needs to be re-calculated. The extra income available depends on age, but it is approximately 4% more for a 60-year-old and 8% more for a 75-year-old. There is no change for males.
HMRC will review the situation once it becomes clear how the gender changes are affecting market annuity rates.
Andrew Tully is pensions technical director at MGM Advantage