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Men could see annuity rates fall by almost 5%

Men could see annuity rates fall by almost 5%

Category: Annuities

Updated: 27/10/2011
First Published: 28/02/2011

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Men are facing the prospect of annuity rates falling by the best part of 5% as a result of an imminent European Court ruling.

An announcement will be made tomorrow that will determine whether the use of gender as a risk factor to calculate annuity rates is a breach of sex discrimination laws.

Such a ruling could see retirement income for males falling by as much as 4.73%. By contrast, women could see their incomes increase by up to 7.77%.

Men currently receive higher annuity rates than women as a risk factor because statistically they don't live as long.

MGM Advantage estimates that if calculations using gender are no longer permitted, men and women will receive a 'unisex' rate which, in general, is lower than the rates offered to men, but higher than those provided to women.

The mutual has taken the average rate of the top three annuity providers for men and women across both conventional and enhanced annuities for four different age groups of potential customers (60, 65, 70 and 75), and two different amounts of money (£25,000 and £50,000), and calculated the percentage difference when compared to the average unisex rates.

A man buying a conventional annuity at 75 with £25,000 and receiving the average income of the top three providers for example, would get £2,182.40 a year, which is 4.73% or £98.52 more than he would receive from a unisex conventional annuity.

The findings also reveal that a man aged 75 with a mild heart condition buying an enhanced annuity with £50,000 and receiving the average rate of the top three providers would currently get £5,271.84 a year.

If he received the current unisex rate, he would lose 3.9% or £197.69 a year. That will mean he misses out on almost £1,400 if he lives to the average ONS quoted age of 82.

However, women could see an increase in their annuity income if unisex rates are applied. For example, a 70-year-old woman with a mild heart condition buying a £50,000 unisex enhanced annuity would currently receive 7.77% (or £341.13) more than an enhanced annuity calculated on the basis of gender.

That would mean an extra £5,100 over the course of her retirement than before the ruling.

"The annuity industry has been moving towards pricing that is far more individual and therefore fairer to the customer,"Aston Goodey, sales and marketing director, MGM Advantage commented.

"While this gender ruling would create winners and losers, the truth is that it's another blow to the conventional annuity and thousands of people approaching retirement.

"The downward trend in annuity rates is forcing more and more people to look at other options such as flexible annuities in order to stand a chance of making their money last in retirement."

If you're approaching retirement, our annuity best buy charts are an ideal starting point when searching for the best annuity rates. An online annuity planner service, such as that offered by Premier Retirement Services, should also be considered.

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