Annuities: Act now to beat the EU pension deadline!Posted by Andrew Stallard
Andrew Stallard says shop around and make a careful, fully informed choice when buying an annuity.
The European Union's income is much in the news recently. Even though Parliament has recently voted to freeze the amount of money we send to Europe, this “freeze” will allow for an increase to compensate for inflation. The end result is that the EU hasn't suffered a significant drop in income. However, if you are a man approaching retirement the EU has plans to reduce your retirement income, significantly, forever!
Here's how: with the EU gender directive which comes into force on the 21st of December 2012. From this date, annuity providers will not be able to offer different rates to men and women. Remember, annuities are how most people fund their retirement, by swapping the pension fund they have spent many years building up, for an income for life from an insurance company. Buying an annuity is an important and irreversible decision.
The EU gender directive will reduce the annuity income available for all men retiring after the 20th December 2012. The European court has ruled that insurers are no longer allowed to use statistical data showing differences in behaviour and mortality of the sexes in their benefit calculations. In contrast to men of more senior years, young men buying motor insurance gain from this and will see their premiums decrease.
Women are likely to see premiums rise despite being statistically safer drivers. In the case of pensions, men will see their income cut and equalised with women’s, despite the mortality figures showing women live longer. Unfortunately, women’s rates are unlikely to improve much with only a modest rise, if any, predicted. So for pensioners, and female drivers, this Brussels directive results in a typical EU coin toss: heads you lose and tails you also lose.
At a time when those nearing retirement are facing a decade of poor stock market returns, annuity rates at a historic low (1) due to record low government gilt yields and increased life expectance further reducing annuity rates, the EU is about to make things worse still! Don’t you just love them?
An estimate from a leading annuity provider puts this loss of income at anywhere between 2% and 4% however HM treasury has gone further and suggested it may be as high as 13% (2).
Remember: this is loss of income year after year for life and could run into many thousands of pounds worth of lost income.
There are lots of factors that affect the income offered to someone purchasing an annuity such as their age, state of health and postcode. But all other factors being equal, the entire pensions industry regards as a certainty that male annuity income will be significantly lower in January 2013 than before the 21st of December 2012.
So significant is this permanent loss of income, some annuity providers are arranging for members of staff to man (and woman!) their telephones and accept application forms until midnight on the 20th of December. As long as the purchase forms are signed and accepted before this date, income at the old higher rate can be secured, even if the actual transfer of funds doesn’t take place until after the deadline.
With most financial planning decisions time is not the most important factor, reaching the correct solution is. We usually advise taking your time when purchasing an annuity, shopping around and making a careful, fully informed choice.
A recent example of our approach to annuity purchase, involving detailed research and fully documenting medical conditions, led to a client’s annuity income improving by 85%.
This was through the purchase of a medically enhanced annuity, something the client was unaware they might qualify for. This approach is still our recommendation, but in the case of the latest EU directive, if you are a man considering retiring in the next few months and purchasing a single life male annuity, it's worth considering beating the Christmas rush and taking advice now!
To find out more about your annuity options, call Andrew Stallard free on 0800 0112825, e-mail firstname.lastname@example.org or take a look at our website www.wwfp.net.
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