At retirement the pensions that you have built up during your working life are usually pooled together and used to secure an income. The traditional way of doing this is to purchase an ‘annuity’ which provides a guaranteed income for life.
Annuity rates have been in decline for many years now and the amount of income that can be secured from pensions has gradually been reducing. Due to various economic factors, annuity rates have fallen by approximately 20% since August 2009.
On 21st December 2012, European legislation aimed at preventing discrimination based on gender will come into force, potentially reducing rates further.
Currently, annuity providers assume that females generally have a greater life expectancy than males. For this reason, females are normally offered lower annuity rates than men. Currently, annuity rates for men are around 5% – 8% higher than for females.
From 21st December, males and females must be provided with the same ‘unisex’ annuity rates. This means that annuity rates are likely to fall for males, but could improve marginally for females. Annuity providers are likely to calculate their annuity rates by ‘blending’ their male and female rates.
Exactly where the unisex annuity rate ends up will depend upon how much weighting each provider gives to its male and female rates. This will be determined by the proportion of the business they expect to write for each sex.
Once the legislation is in place we expect unisex annuity rates to be lower than the current male rates. However, over time it is possible that rates will settle more towards the midpoint of the equivalent male and female rates (all other factors remaining equal).
It is important to note that the variance between gender is not constant; other factors including age, health, guarantee features and escalation can also have an impact.
Whether you are male or female, if you are thinking of taking retirement benefits, we will discuss your options with you and consider the potential impact of the new legislation on your circumstances and retirement income.
Continuing to defer taking retirement benefits may result in a lower income so contact Springfield Financial Services Ltd on 01772 729 742 to arrange a face to face meeting to discuss your options.