Women drivers and men on pensions will suffer if the European court of justice rules that insurers should disregard gender
Boy racers and golden girls will be the winners if a European court rules that "gender discrimination" is illegal when it comes to how much we pay for insurance and the income we get from our pension when we retire.
Young male drivers could see their premiums slashed by as much as 25% almost overnight if the decision ? expected in 10 days' time ? goes in their favour, while some older women may be able to look forward to a higher payout when the time comes to swap their pension pot for a regular income.
But young women drivers and millions of older men (and their wives and widows) would be the losers if the European court of justice (ECJ) rules that insurance companies can no longer use gender to calculate insurance premiums and annuity rates.
Some under-25 female drivers could be hit with premium hikes of 50% or more, which could translate into an extra �500-�600 a year. That's a heavy price to pay for equality, some might say. Meanwhile, men retiring from next month might see a 5% ? or possibly even 10% ? cut in their income, which would leave people thousands of pounds worse off over a 25-year retirement.
Such a ruling could also mean big changes in the way financial companies sell their products. In a unisex world, would there be any future for firms specialising in car insurance for women, such as Diamond and Sheilas' Wheels?
Proposals for "gender equality" insurance have been around for years. But insurers have always argued that banning gender as a factor when calculating premiums would be ridiculous, bearing in mind the significant differences in the "riskiness" of men and women ? women live longer, young men are more likely to have car accidents, and so on. In the end, member states were allowed to opt out of an EU prohibition, provided certain requirements were met. The issue, however, has continued to be controversial, and on 1 March the court in Luxembourg will deliver its verdict on a test case by a Belgian consumer body.
Laith Khalaf, pensions analyst at investment firm Hargreaves Lansdown, says the prevailing opinion in the industry is that the court is going to rule that taking a person's sex into account is illegal. There has been some talk of a three-year transitional period, though Khalaf says it seems more likely that any ruling would take effect immediately. An ECJ judgment cannot be appealed.
Insurers and annuity providers are getting their systems ready so they can offer unisex pricing from the start of next month if necessary. Some have already acted ? Canada Life said it would stop offering a guaranteed period for annuity quotes issued between 25 February and 1 March.
One remote possibility is that the UK could thumb its nose at what many will see as more European meddling. "Will parliament, in its new-found anti-European stance, say 'no, we're not having it'?" asked Bob Bullivant at retirement income specialist Annuity Direct.
But what could the ruling mean for insurance and annuities?.
Retirement income
If gender discrimination is outlawed by the court, this should, in theory, mean a better deal for women when it comes to swapping their accumulated pension pot for an annuity ? the product that provides an income for life. Because women can expect to live four years longer than men, their annuities are typically lower, as the money in their pension has to be spread over more years than men.
If gender were no longer taken into account, both sexes would receive the same annuity rates ? and that would be very bad news for men. Khalaf says: "We think that in the immediate term [we would see] around a 5%-10% drop in male rates, which would probably put them at or around female rates."
That broadly tallies with current rates. This month, a 65-year-old man with a �100,000 pension pot could buy a "single life" annuity giving him an annual income of �6,860. A woman of the same age would only get �6,520, which is 5% (or �340) less. Those numbers suggest a man could be �8,500 out of pocket over a 25-year retirement.
But will women enjoy higher annuity rates? The answer seems to be: don't get too excited. Khalaf says women "will experience only marginal improvements", while Canada Life says: "We would expect female rates to improve slightly". It is important to remember that most annuities are bought by men. That means many wives who depend on their husbands' retirement incomes stand to lose out. Meanwhile, any woman about to buy an annuity should probably hold off until the verdict.
Car insurance
Gender equality in insurance would, in particular, affect motor cover, where women tend to pay less because they are deemed to be safer drivers. A court ruling in favour of equality would push up premiums for women under the age of 25 by an average of almost 25%, while male drivers in the same age group would benefit from a typical 10% reduction in costs, according to a research paper issued by the Association of British Insurers (ABI) late last year.
But for some, the costs, and the benefits, would be much greater, it says. Some women aged under 25 would be hit with hikes of between 50% and 60%, while some young men could see the cost of their cover cut by as much as 25%. That could mean a 20-year-old woman paying �1,000 for her motor cover could see this jump to around �1,250 ? or possibly �1,600.
"Under unisex pricing and given the sharp rises in premiums, young female drivers who pass their test aged 17 or 18 might choose to delay purchasing a car until their 20s," says the ABI paper.
Martin Lewis at MoneySavingExpert.com says women potentially affected should act quickly. "If your price may rise and you're due to renew, do it as soon as possible to beat the deadline."
An equality ruling could change the behaviour of individuals and companies. Cheaper premiums for young men may mean some opt for more powerful cars ? which might have consequences for road safety. Meanwhile, some insurers may try to get round the rules by "re-classifying" the cars typically bought by young men into a higher insurance category, which would in turn push their premiums up.
Removing gender as a factor in insurance pricing would probably make little or no difference to the premiums of people in their mid-30s and older.
Private medical insurance
The use of gender when calculating what people pay for private medical insurance is a relatively recent phenomenon, and a number of providers, including large firms such as Simplyhealth, don't do it. One (unnamed) provider that does, told the ABI that premiums for men aged 35?50 might increase by up to 15%, while for women in this age group they might fall by up to 12% if it had to move to unisex rates. For men over 60, premiums would fall by 7%, and for women over 60 they would rise by up to 8%.
"Term" life insurance
This provides a fixed cash lump sum if you die during the term of the policy. At the moment, men almost always pay more than women. According to Moneyfacts, a 35-year-old non-smoking woman could buy �100,000 of cover for 20 years for a monthly premium of �5.94. For a man of the same age the cheapest policy is �6.52 a month. Unisex pricing should mean women pay more than now. Some insurers may simply use the male rate for everyone, which could result in fewer women taking out cover.
Source: http://www.guardian.co.uk/money/2011/feb/19/insurance-pensions-price-equality
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