Gender Equality – is anyone a winner?

Currently UK insurers have an ‘opt-out’ on the EU’s ‘Directive on Equal Treatment’ meaning that they can use gender as a determining factor when assessing and pricing insurance products. However, from the 21^st December 2012 this will be revoked – meaning that your gender won’t change the price or benefits of an insurance product. This move has been welcomed by many in Europe as a step towards complete gender equality but reactions in the UK have been mixed – here we have a look at why.

What happens at the moment?

The effects are going to touch nearly every insurance product: from car and life insurance to critical illness cover and annuities. For example, in the UK a 65 year old woman is expected to live, on average, 2½ years longer than her male counterpart. As a result, insurance companies offer women a slightly lower annual payment than men for equal pension pots – as the company expects to have to pay it out for longer.

Similarly, it’s a well-known (though highly-disputed!) fact that women are safer drivers – at the very least, women are involved in fewer fatal accidents than men. As such, women cost insurance companies less in pay-outs and are rewarded with lower premiums. Companies such as Sheila’s Wheels have built their whole business based on this premise alone.

But all this will stop! From the 21^st December onwards gender cannot be used as a determining factor in pricing.

How will this affect me?

Obviously the answer to this question depends on whether you’re a man or a woman and what you want to purchase! Nobody knows what prices the insurance firms will use post G-Day as it has come to be known but the new prices will likely lie between current male and female rates but erring towards caution from the insurer’s perspective. In other words, where one gender pays more than the other we expect the new price to sit closer to the higher price than the lower. Insurance companies will still need to ensure they make profits within their risk appetite and pricing at the more expensive end is the easiest way to achieve this. Some predicted shifts are as follows:

Car Insurance:                      Good news for men – Bad news for women (particularly young women)

Research by MoneySupermarket suggests that men aged 17-19 pay a massive 69% more than women for their car insurance. This disparity reduces with age but with prices set to be the same women can expect a substantial increase in the price of their car insurance.

Price: The Association of British Insurers expects female prices for under 25s to increase by up to 25% whilst the Treasury expects male rates to drop by about 9%.

Annuities:                             Bad news for men – Good news for women (but not by much)

As mentioned previously, men’s shorter life expectancy has usually resulted in a higher retirement income than for women.

Price: Male annuity rates could drop by up to 13% according to Treasury forecasts. Female rates, on the other hand, are unlikely to rise much, if at all, and Canada Life has recommended that women shouldn’t count on their potential incomes increasing!

Other insurance:                 A mixed bag

Women could end up paying more for life insurance; less for income  protection and probably the same for medical cover as much of it is already on a gender-neutral basis.

So who is the winner? Insurance companies?

In the short-term the answer is most likely no; insurance providers are spending large sums of money to ensure that their systems can quote correctly and that their processes are fully compliant. That said, many providers are also quick to point out that their pricing systems take into account many factors besides gender and that the directive’s ruling won’t have a huge effect.

A step towards gender equality or actuarial madness?

The gender directive certainly isn’t going to make any insurance products cheaper and some critics say that if gender can’t be a discriminator when actuaries calculate risk then nor should age. One dreads to imagine what the insurance world would look like in such a scenario where annuities are not priced on age and a 20 year old pays the same rate as a 70 year old…

So what should I do?

Unsurprisingly insurers are telling customers not to panic and to wait until they next receive a renewal quote – but for many this will be too late. Certainly women under the age of 40 should ask their current car insurer about its plans and be prepared to look around for better deals. At the same time men should consider the potential effects to their income of delaying retirement until after the change.

For protection and life insurance both men and women need to consider their options. It’s possible that income protection and life cover will become more expensive for everybody as insurers may look to add margin to their books through raised premiums.

If you’re concerned that you might lose out because of the gender directive you should speak to a qualified financial adviser who can help you make the right decision. Depending on the cover you need and lifestyle you have, thousands of pounds could be at stake!

Women and pensions in 2012 - the key facts

It's not top of everyone's list of "things I enjoy thinking about" but it is becoming increasingly critical. Planning for your retirement and what you are going to need financially in order to figure out at what age you'll be able to retire, how much income you will need to live a comfoftable life, what pension or other fund value you need to produce that income and hwther what you have will last a full retirement is just plain essential.

A report out this week from Scottish Widows shows that 42% of women are saving adequately for their retirement. Current economic pressures mean that women have been neglecting their long-term savings, with 19% saving less than the year before and 28% still not saving at all. Just 16% of women have made the effort to save more over the past year.

Women who are already saving into pensions are reluctant to cut their contributions and are well aware of the need to save for old age; 28% of those surveyed who plan to save more over the next 12 months are doing so for their retirement. Whilst 72% of women agree with the statement that people will have to take more responsibility for their own retirement, actions are not following words, with other savings being prioritised over pensions. The problem here is that women can be missing out on the significant tax benefits of saving into a pension and also they are at risk of plundering the savings accounts when a rainy day threatens - or a luxury starts looking like a necessity. On average where women are saving for retirement outside of a pension wrapper they contribute around £200 a month - and they are missing out on the benefits of pension tax relief in the process.

40% of women said they saved mainly for the short term and 28% mainly for the long term. Whilst there is very little difference between the sexes in levels of participation in employer-sponsored pesnions, men are TWICE as likely to be paying into an individual pension. When prioritising for their fanilies' finanical needs, women are putting mortgages and debt repayments at the top of the list  - completely understandably. 25% of women said they have prioritised mortgage payments over the last 5 years and 31% have paid off debt. 42% have hd to prioritise living expenses over pension saving.

Divorce has a huge impact on both parties' finance but only 15% of women said pensions were discussed as part of their divorce settlement, even though t is a legal requirement that they should be. Women should ensure that this is part of any discussion, in order that they don't lose out. We can help advise on this tricky situation and help you navigate through the options.

As the report states, "Knowledge is power" - the underuse of pensions could be due to a lack of understanding about the benefits, or a knowledge gap around pension benefits or funding levels.

"Pensions are a hot bed of jargon and confusion, making them unattractive to the uninitaited, whereas ISAs are a starightforward and popular savings vehicle" the reports goes on. This is a fact - and many people have neither time nor inclination to trawl through complex and often impenetrable data to try to figure out what they should be doing. This is where a financial adviser is worth their salt - they can save you money in tax, increase your savings through sound investment and help flex programmes to suit your changing life. The question increasingly becomes not whether you can afford to take advice, but whether you can afford NOT to take it.

Annuities - dull? Desperately important. We keep it simple..

In the world of pension planning annuities are a hot topic. It’s not everyone’s burning desire to read about them, so we are going to give you a short series of bit-size blogs to help you understand what you might need to know about them. The next 4 weeks will focus on some of the important considerations that people face in the lead up to retirement and how good advice can help you make the right choices.

Despite what many people say, annuities are not necessarily a straight-forward automatic option. There are a few myths to debunk immediately:

·         Your pension automatically becomes an annuity

·         Annuities are restrictive

·         Annuities are a bad deal

Choice

When you come to retire you have a choice. In fact, you have a huge array of choices and the whole thing can become somewhat overwhelming: do you want an annuity or income drawdown?; a spouse’s allowance?; growth in line with inflation?; a guarantee period?; full tax-free cash? I could go on and on but the fact of the matter is that your retirement decision is not a simple one and it’s often one that you’ll be stuck with for a lifetime. Sound financial advice can ensure that you take the decisions that are best suited to you and are going to serve you and your family well in retirement.

Flexibility

Annuities might not be the most flexible retirement income model (we’ll come on to that in a future blog) but there is certainly a lot of variety to consider besides the traditional ‘bog-standard’ annuity. For an extra price you can ensure that your spouse receives an income after your death or that your income grows every year. If you suffer from poor health or are a smoker you can also qualify for an uplift in the income that you’ll receive – for example, high blood pressure could add up to 31% to your income^*!

A good deal better than you might think

Annuities are getting a lot of bad press at the moment, and rightly so: rates are at near record lows largely due to the current economic climate. Despite this, annuities are still the best option for a large number of people: it is the only way to ensure a secure income for life without any investment risk. In its simplest from, insurers consider the number and lifespan of those who live long lives and those who don’t so as to offer the best rate somewhere in between (minus a bit of profit of course!).

We all hope we’re going to live to 100 but few of us would have the means to finance this if we did!

So that was my whistle-stop introduction to annuities. In the coming weeks I intend to demonstrate a bit further some of the interesting aspects you may be unaware of and hopefully prove that there’s still value in a product that can trace its history back to Roman times! As ever, though, with such an important investment in your future, solid, independent financial advice is crucial to making the right choice for your own personal circumstances.

* Source: HL Annuity Supermarket and Just Retirement, 25 June 2012 compared to lowest healthy life annuity rate