* Women could get more pension extras, men less
* Prudential, L&G committed to stick to annuities
* Some insurers will still try to work out gender
By Cecilia Valente and Sarah Mortimer
LONDON, Feb 22 A ruling by the European Court of
Justice (ECJ) expected next week could boost women's retirement
income by up to 10 percent and make men worse off, creating
upheaval in the insurance sector.
Insurers currently pay retired men who have purchased an
annuity more than women on the basis that on average they live
three years less, according to investment adviser Hargreaves
European Union Advocate General Juliane Kokott argued in a
preliminary finding last September that gender should not count
as a risk factor for annuities, saying economic and social
conditions also influence life expectancy.
If judges in the ECJ incorporate her views, the gender
disparity in annuities would end, which could impact profit at
insurers like Legal and General (LGEN.L) and Prudential (PRU.L),
unless costs are passed on to clients.
Here are some possible scenarios highlighted by pension
experts and lawyers:
GENDER-BASED INSURANCE RATES ARE IMMEDIATELY ABOLISHED
Women could in theory see total increases in payouts of
pension annuities of hundreds of millions of pounds, said Andy
Cheseldine, principal at consultant Lane Clark and Peacock.
The Association of British Insurers has advised its members
that "it would be sensible to consider the implications (of such
a scenario) for the customers and business" in the run-up to the
judgment, expected on March 1, a spokesman told Reuters.
The change, if it means men are paid less per month, could
also drive male clients in Britain away from the annuities
Furthermore, a forthcoming change in the law will drop the
obligation on retirees to buy an annuity with their pension
savings. The judgment could make men approaching retirement,
especially those with a large pension pot, look for alternatives
such as high yielding investments or property that can provide a
Because British retiress are currently forced to buy an
annuity with their pension savings, the UK accounts for about
half the global market for annuities, said Cheseldine.
The costs of processing each annuity application would rise
too if insurers are forced to base calculations on alternatives
to gender, such as lifestyle, leading to a more complex, and
therefore costly process.
"There would be a massive amount of investigation in order
to determine how long that particular person will live. It is a
headache for everybody," said Zoe Lynch, partner at law firm
"Men would lose out by more than 10 percent and women would
gain by less than 10 percent," Cheseldine said.
A swift change would be the "most likely" event, according
to Lace Khalaf, a pension analyst at Hargreaves Lansdowne.
Speculation in pension circles has mounted that the change
would prompt some providers to pull out of annuities altogether,
but both Prudential and L&G, the main British players, told
Reuters they would not leave the market, whatever the judgment.
French insurance group Axa (AXAF.PA) declined to comment,
while German insurer Allianz (ALVG.DE) was not immediately
available for comment.
GENDER-BASED RATES GRADUALLY PHASED OUT
The ECJ could accept the advocate general's suggestion to
allow a transitional period for member states to decide what
action to take on domestic laws and give companies a chance to
The hiatus between ruling and implementation could give
companies and clients time to find ways to mitigate the knock-on
For instance, demand for impaired life annuities, which
provide higher than normal income to consumers with a health
problem and make up 10 percent of the industry, could rise and
impact healthy consumers, Cheseldine said.
Annuity pension providers could also start finding
alternative ways to discover an applicant's gender without
asking directly, another insurer told Reuters, declining to be
GENDER-BASED RATES ABOLISHED RETROSPECTIVELY
The ECJ could rule that all existing annuity contracts would
have to be rewritten to reflect unisex rates, but this would be
a "fairly unlikely chance", Hargreaves Lansdowne's Khalaf said.
"If that is the case, there will be an upheaval for insurers
and for pensioners," he added.
ADVOCATE GENERAL'S OPINION REJECTED
The ECJ usually follows the advocate general's opinion but
it is not bound to do so. The ECJ could in theory declare the
European Gender Directive, which inspired Kokott's opinion,
invalid in respect of annuities, leaving matters unchanged.
(Editing by Rex Merrifield, Chris Vellacott and David Cowell)