Retire before Christmas?

12th November, 2012

  • Would you like to retire soon?  Are you over age 55?  If the answer to both these questions is Yes, then read on.  If not, then you should read on anyway, because this is quite interesting (in pension terms; it’s all relative).

    New rules to be implemented in December could mean that you receive less income from your retirement pension than you had expected.  Up until now, men have received, on average, about 4% more from their annuities than women have; the reason for this is that men tend to have shorter life expectancy, and so receive their payments for a shorter time.

    A new European Union gender directive, however, coming into force on 21 December, will prevent insurance companies from using an individual’s sex to determine the level of the annuity available.  Insurers have said they will concentrate more on medical conditions, and the type of work a policyholder has done, when determining the size of the annuity.

    The effect for men is that they are likely to see a sharp drop in annuity rates; it may, therefore, be prudent for men who intend to draw their retirement income in the near future to seriously consider doing so before this change takes effect on 21 December (unless you’re Santa).  By doing so, they could take advantage of the current rates and secure a significantly higher income.  Before doing so, however, it would be prudent to look carefully at the terms of their policy, as there may be an entitlement to a guaranteed annuity rate, or terminal bonus, which could more than make up for the change in annuity rates.  It should also be noted that some providers are implementing this change before the new directive comes into force.

    Conversely, women may be well advised to wait until after the rates change to begin to draw their income.  Not surprisingly in the world of pensions, this isn’t as straightforward as it seems, however, and an expected fall in annuity rates over the next few weeks could erode any apparent gains.

    No matter when someone decides to take their income, one of the biggest decisions they can make may be to refuse the annuity offered by their pension provider.  Figures show that the vast majority of individuals can achieve a significantly higher annuity – and one more tailored to their individual needs – by shopping around and taking appropriate advice.  It would be nice to think that all annuity providers, scheme trustees etc were beavering away to find you the best possible deal but, unfortunately, that is not always the case (some might say rarely), and the onus is increasingly being put on the individual to negotiate an increasingly complex pensions maze.


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