What is RDR – EU Gender Directive for Pensions and Annuities?

RDR for me is many things but it fails on one level, and that is the possibility that individuals will need to make their own way in a complex market. Imagine if electricians or plumbers no longer would call to your house for work under £1,000. You would turn to friends or do it yourself. In some cases this would work in others it would be a mess.

The EU Gender Directive is an example of this. I had a friend how contacted me because his solicitor told him to buy an annuity because his annuity rate would drop by up 10% if he did not buy before December. I have also seen direct sites stating similar values. Of course this creates fear, fear then creates a herd mentality and eventually panic buying.

Education or financial planning is about cutting through the noise. Let’s say your financial plan is in place and you are currently receiving your income from a number of sources including pension drawdown what do you do?

Let’s look at the facts?

What is the Gender Directive?

Basically from 21^st December it will not normally be lawful to offer individuals different annuity rates for males and females. This means they must be written on unisex terms.

What this means is that providers have assumed males generally have shorter life expectancies than females. For this reason males get better rates than females, however now they must have the same rate.

How will this impact on annuity rates?

In reality it is likely providers will blend their male and female rates. So this means rates will fall somewhere between their current male and female rates. How this sits will depend between providers.

Currently annuity rates for men are around 5% - 8% better than females. Early indications seem to show that providers will move closer to the current female rates and then move to a mid-ground at some point in the future.

The biggest impact appears to be around where an individual is buying a pension with no spouses pension however where there is a joint annuity the change is not so dramatic. The tables below provide an example (although not guaranteed):

Joint Life Basis (50% spouses, £50,000 premium)

Client age	60	65	80
Male / Female	£2,720	£3,040	£4,640
Female / Male	£2,670	£2,970	£4,460
Impact	1% - 2%	1% - 3%	2% - 5%

Single Life Basis (£50,000 premium)

Client age	60	65	80
Male	£2,620	£2,940	£5,140
Female	£2,520	£2,810	£4,660
Impact	-4%	4% - 5%	8% - 10%

How will this impact on pension drawdown?

Interestingly the current rules from the HMRC are that the both males and females will use the male rates. This means that for males there will be no change but for females this could see an increase in income.

So for example a female age 60 with £50,000 premium and 2.25% gilt rate would receive £2,250 p.a. From December this will go up to £2,400. An increase of over 6%.

It could be this is a limited opportunity but we will have to wait and see.

So what do you do?

This comes back to financial planning. If you have a plan and that plan indicates that drawdown is one of the sources of income then the question is whether anything has changed to that plan to make you move to buying an annuity? My argument is this it is very easy with all the noise, and marketing material to panic and run with the herd. But if nothing has changed, and you can still deliver on the plan then walk away from the herd.