Prudential is first to reveal new gender-equal pricing

| November 13, 2012 | 0 Comments

Adam Uren

12:46 EST, 13 November 2012


12:56 EST, 13 November 2012

Pension savers have been given hope that changes to annuity pricing, forced on Britain by new European Union rules, will be more favourable than feared.

Prudential, one of Britain’s biggest insurer, became the first this
week to take the historic step of implementing an EU directive banning
gender-specific annuity rate setting

A pensions expert today said women could receive up to 11 per cent more in annuity income from Pru as a result of the changes.

Bias is banned: Prudential has become the first insurer to offer gender-equal annuity rates ahead of new EU rules coming into force on 21 December.

Bias is banned: Prudential has become the first insurer to offer gender-equal annuity rates ahead of new EU rules coming into force on 21 December.

Money in pension pots is used to buy annuity policies from insurers who provide a regular income.
Women have historically been paid four per cent less than men for their
annual annuities, to reflect longer average life expectancy.

But insurers will no longer be allowed to do this from 21 December when the EU rules come into force.

It was predicted that men’s annuities
would fall further than women’s would rise to equalize the discrepancy,
but the Pru has raised women’s rates higher than expected, with men only
suffering a modest fall in income.

Although annuity rates will no longer be based upon sex, each annuity calculation will still depend on a variety of other factors including the size of the pension pot, age when buying the annuity, and postcode.

But Prudential has said that a woman aged 60 taking out Pru’s Guaranteed Pension Annuity (GPA) could expect an increase of 2.9 per cent, with the same product for a man aged 65 falling by 1.6 per cent. That’s provided both live in the same postcode.

Financial services firm Hargreaves Lansdown has calculated that the biggest improvement will be for women aged 75, taking an RPI-linked annuity. They will get 11.4 per cent more income under Pru’s new pricing. Men at that age would only get around 1 per cent less.

Meanwhile, men aged 60 buying an RPI-linked annuity could get income that is four per cent lower than previously.

But Tom McPhail, head of pensions research at Hargreaves Lansdown, said that while the change to gender neutral charging at Pru has largely benefited women, men have not done as badly as expected.

He added: ‘The Pru is the first company to show its hand, ahead of the gender directive coming into effect on 21 December.

‘The bulk of the movement has been in women’s favour, with only modest reductions for men.

‘However, Prudential’s rates are not the most competitive in the market, either before or after this adjustment – so other companies may have to pitch their gender neutral rates slightly less generously for men.’

Mr McPhail has urged women to hold off on buying an annuity until more companies have revealed their new rates, whereas men planning to buy an annuity in the near future should do so as soon as possible.

Prudential has said the quotes it produced for gender-specific annuities prior to 12 November will be honoured provided the applicant makes the purchase prior to 13 December, although the cut-off date may vary depending on what kind of annuity is being applied for.

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