Men warned to act now on annuities or face lower retirement incomes

By: Emma Morris
Men looking to buy an annuity – a retirement income for life – are being urged to purchase before the introduction of the new EU Gender Directive on 21st December, as rates are likely to be higher if they act now.Nigel-Green

Earlier this year, the European Court of Justice ruled that after that date insurers will no longer be allowed to use gender to set annuities and other premiums.

“Men who are on the verge of retirement should buy their annuity sooner rather than later as the Brussels-devised directive could see them receive a permanently lower retirement income if they delay,” warns Nigel Green, chief executive of the deVere Group, the world’s largest independent financial advisory firm.

“It would be madness to wait until after the 21st December, when the EU’s gender directive is launched, if you’re a man who is planning to buy an annuity in the next few years.

He explains: “Currently men, after purchasing an annuity, will receive higher retirement incomes than women, because women, on average, live longer, meaning the money has to last longer.  

“But that is all about to change. When the directive comes into force it will become illegal for an insurer to factor-in gender when determining an insurance premium.  

“The unisex rates are expected to be between the existing male and female rates – so men’s rates are highly likely to be cut, resulting in a lower pension income for life for those who wait until after 21st December to buy their annuity.”  
Indeed, annuity rates could fall 3 to 4 per cent for men, according to MGM Advantage.

Additionally, with annuity rates at historic lows, and on a seemingly unstoppable downward spiral, the deVere Group’s chief executive suggests that both men and women should consider the options at the earliest opportunity.

Speaking to Global Banking and Finance Review, he notes: “All the signs indicate that the already rock-bottom rates will continue to plummet.  This is in no small part due to the ongoing crisis in the eurozone.  For example, the turmoil in the euro bloc is driving many investors into the gilts of ‘safe haven’ Britain, which is having the effect of pushing up their price, reducing their yield, and forcing annuity providers to cut rates.  

“This drive into Britain’s gilts could be exacerbated by news that the composite Purchasing Managers’ Index of Germany, the country that props up other member states, fell to 47.0, its lowest level since June 2009 – when the eurozone area was in its worst recession since World War II.

“In short, annuity rates have been cut 23 times by 10 different insurers since July, and that trend looks set to continue for the next year, and probably into 2014, so investors approaching retirement are advised to act as soon as possible,” says Mr Green.

“Deferring an annuity purchase even for a few years could mean that you struggle to make ends meet during your retirement.”

According to financial adviser Hargreaves Lansdown, annuity rates are, on average, 2.6 per cent lower than they were at the beginning of July.  

This means the income of a 65 year-old man with a fund of £100,000 is £152 worse off, down from £5,591 to £5,743.
In its report, Standard Life slashed its annuity rates by 5 per cent, which reduces the income from a £100,000 fund by £250 annually.

Despite growing calls for urgency, Mr Green, like many respected financial experts, stresses that buying an annuity is an important decision and “should not be rushed into.”

He says: “An annuity purchase is for life, so the right product is as important as the right annuity rate.”

The importance of ‘doing your homework’ on the right deal, and not simply accepting the rate offered by your pension provider, has been recently highlighted in a study carried out by MGM Advantage.

 “Shopping around for the best deal is crucial [not doing so] could potentially leave you short changed by as much as 46 per cent of your income,” the firm’s pensions technical director, Andrew Tully, said in a press statement recently.

In conclusion, Nigel Green of the deVere Group, comments: “Buying an annuity is a major decision and, like any important financial consideration, it would be wise to seek the advice of an independent financial advisor – especially in these challenging and fast-moving economic times.”