ECJ ruling could impact retirement incomes

The European Court of Justice (ECJ) has ruled that unisex premiums and benefits will apply from 21 December 2012.

The ruling means gender cannot be used as a factor in the calculation of insurance premiums and benefits.

A statement from the ECJ said: “Taking the gender of the insured individual into account as a risk factor in insurance contracts constitutes discrimination.”

The ruling, which will affect all areas of insurance, could lead to increased costs, as it prevents annuity providers from offering different rates for men and women.

Darren Philp, director of policy at the National Association of Pension Funds (NAPF), said: “We are disappointed with today’s decision as it will lead to a worsening of people’s pension incomes.

“While it is right that annuity providers should not arbitrarily differentiate between men and women, the data shows 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.”

The ruling could lead to an equalisation in retirement income rates, which will be better than female rates, but significantly worse than current male rates. Demand for alternatives to lifetime annuities such as drawdown could also increase, particularly among the healthy and wealthier investors.

Tom McPhail, head of pensions research at Hargreaves Lansdown, said: “According to the ECJ, homo sapiens is now unique in being the only species to boast three genders: male, female and European.

“This ruling is a seismic event which will fundamentally reshape the retirement landscape.

“It is now imperative very investor shops around with their pension fund at retirement. If they do not, they risk ending up with a homogenised standard–issue annuity which is almost certain to be a poor deal for them.”

However, the Association of Medical Insurance Intermediaries (AMII) does not believe the ruling will not have a severe effect on private medical insurance (PMI).

Lindsey Joseph, executive committee member from AMII, said: “The vast majority of PMI insurers do not have different premiums for gender and for those that do, the difference in premium is not significant.†

“However, there are a couple of insurers which 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 [affected], they should seek specialist advice on alternative options within the market, especially if continuous cover is required for previous medical conditions.”

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