From 21 December 2012, new European gender law means that men and women will have to be treated the same when it comes to some insurance and pension products. The potential effect of these changes is as follows:
- Men looking to retire in next few years should consider their options now, as annuity income is likely to fall.
- Also post December 2012, costs are likely to increase for men wishing to effect critical illness and income protection arrangements, so men should be considering putting these in place now.
- Women should not rush for a retirement annuity income as their annuity income may increase.
- However, after December 2012 life cover costs are likely to go up, so they should be hurrying now for competitive life cover.
In summary, the ruling focuses on the perceived gender discrimination that exists when using gender to determine the costs for insurance and pension incomes.
Currently, insurers are permitted to use the differences between the sexes to charge different rates for their products according to the risks presented. This means that some forms of insurance are cheaper for women and others for men. From the end of 2012 insurers will no longer be permitted to charge rates separately for men and women.
Also from January 2013, most life insurance companies will be required to pay more tax, increasing costs and pushing up prices.
The potential impact on life cover
Because women have a longer life expectancy than men, women currently pay on average around 17% less than men for life cover. Of course the extent of difference varies depending on such things as age, smoker status and the term selected.
Liverpool Victoria (a well established life company) expects that the impact of equalisation will result in both premiums increasing and men’s could increase by an average of 3% and women’s by an average of 22%.
The potential impacts on critical illness cover
Most critical illness cover is bought with life cover. Currently, women pay on average around 10% less than men for critical illness cover. However, due to the incidence of breast and other female cancers, critical illness premiums for middle aged females can be higher.
Liverpool Victoria expects that the impact of equalisation will result in both premiums increasing. Men’s could increase by an average of 6% and women’s by an average of 16%.
The potential impact on income protection
Currently, men pay on average around 40% less for income protection than women. The extent of the difference isn't constant though and varies depending on factors such as age, term, escalation, occupation and deferred period.
Liverpool Victoria expects that the impact of equalisation will result in an average increase of 20% to income protection premiums for men and a 28% decrease for women.
Please note that whilst the above is how Liverpool Victoria perceives the future, this is far from guaranteed; in fact insurers might keep the prices the same for the more expensive groups and put up the price for the previously cheaper groups.
What we do know is that the current regime allows providers to offset the costs of their life insurance business from the profits made on their investments.
For new policies from 1 January 2013, this will no longer be allowed. Whilst closing this ‘loophole’ will raise more revenue for HM Treasury, it's set to push up life insurance costs for insurers, which inevitably will get passed on to consumers through higher premiums.
The increases to premiums will affect both life insurance and critical illness cover (as most critical illness is combined with life cover).
The potential impact on retirement income
In theory providers will be required to assess applications based on the whole pool, ignoring gender.
Therefore, this would mean that men would get less income and women more income than at present.
Whether this is how insurers interpret the rules remains to be seen. Therefore it would seem sensible to suggest that if you are a man who plans to retire soon, you should consider taking your retirement income before December 2012. If you are a woman, you should consider delaying your retirement income until 2013.
We can help
As can be seen from the figures above, there are different messages for men and women. However, in the main, costs are likely to increase, which essentially means many individuals who are taking out insurance from next year will pay hundreds of pounds more and men looking to retire will receive considerably less.
For more information about to draw retirement annuity income now or assistance relating to protection arrangements, please speak to our financial planning team on 01242 682 141 or email email@example.com