The EU and You: Changes to Annuities for Better and Worse
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Date: Fri, 27 Jan 2012 Time: 2:59 PM
The EU and You: Changes to Annuities for Better and Worse
According to HMRC, the UK has the largest annuities market in the world. Figures from 2009 show that 450,000 individuals purchased an annuity - the most common method of converting a pension fund into a regular payment on retirement which are offered by insurance companies. Those about to retire should consider their annuity options sooner rather than later as significant changes are afoot in the insurance market...
The European court of justice (ECJ) ruled in April last year that gender can no longer determine the cost of insurance premiums because it constitutes as 'gender discrimination'. These changes will come into effect as of 21 December 2012 and will alter the cost of life and car insurance policies as well as annuity rates, affecting millions of people.
How it affects your annuity
Under current rules, men receive a higher income from their annuities because their average life expectancy is lower than that of women. This means that insurance providers assume male pension pots can produce more income over an expected shorter period. But legislation changes mean that men and women will receive the same income in retirement thanks to a balancing of annuity rates.
As a result of the ECJ ruling, millions of male retirees will be thousands of pounds worse off depending on the financial product being bought. According to pension experts' predictions, men could see their annuity rates drop between 5% and 10% - closer to current female rates. The alterations mean that 65-year old man with a £75,000 pension pot will be worse off by around £255 a year, or more than £6,000 overall if he lived until the age of 90. Bad news for men, but great news for women; in theory.
In the UK, the average life expectancy for a woman is 82 years of age, around four years longer than a man. As a result, women's annuity rates and income could be expected to be lower. According to the Association of British Insurers (ABI), annuity rates for women could rise by 6% when the rules come into place, although this may take a few months. Consumers are also warned that joint annuities - most of which are bought by men to cover their partners - will take into account the husbands' retirement incomes thus women in this situation will lose out also.
With annuity changes looming, shopping around for the best annuity rates has never been more important. Annuity rates are likely to be volatile over the coming months as insurers get to grips with the changes in pricing. However, depending on the annuity type and financial circumstances the majority of investors may well fare better to delay purchasing rather than rushing to purchase one before December 2012. Investors are ultimately advised to seek the help of an annuity expert who can help put investors in touch with the most lucrative annuity rates.
About the Author
- John T Hughes writes for Annuity Rates UK, a site that connects consumers to annuities advice they can trust.
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