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"FAIRNESS" threatens cheaper car insurance for women..

An EU drive for ‘fairness’ in pensions doesn’t account for life expectancy, and could cause other costs to rise. By Nic Cicutti

The thorny issue of women’s financial equality came to the fore again this week, after the UK’s City watchdog warned that a European Union proposal to ensure both sexes receive equal incomes from their pension pots could backfire.

Callum McCarthy, chairman of the Financial Services Authority, claimed that forcing insurers to offer both men and women the same rates on financial products they buy could, ironically, lead to higher prices on some policies, most significantly car cover.

“The effects will be, in all cases, to require insurers to depart from realistic assessments of risk – a principle which runs counter to good sense,” McCarthy said in a speech to the City this week.

His broadside on the question of equal product charges is the latest salvo being fired by most of the UK’s financial big guns against a draft EU directive whereby gender would no longer be used as a factor in calculating insurance premiums.

The EU commission’s aim is to end a practice whereby women find that the annuities they buy is significantly smaller than male retirees at the same age and with the same amount of money.

The scale of the problem can be seen by looking at the example of a woman aged 65 next birthday, who has managed to save £100,000 for her retirement. According to Hargreaves Lansdown, a UK-wide firm of financial advisers, the best index-linked annual pension available today would be £4638. A man of the same age would get £5106 a year, £550 more.

Anna Diamantopolou, the outgoing EU social affairs commissioner who has drafted the directive, argues: “This is a form of discrimination in terms of access to goods and services and is thus unacceptable.” Her proposal would base insurance payments on factors such as health risks and life expectancy, not on sex.

But insurers in the UK, including some of Scotland’s biggest companies, pour scorn on the idea. Women, they say, live longer than men. It isn’t that women receive less: the money might be the same, it is just spread out over a longer period.

The FSA supports this view. It argues that for women to receive higher pensions, those paid to men would have to be cut. McCarthy claimed this week: “[FSA] estimates show that, for annuities, the result of ignoring – or overriding – the reality of different life expectancies for men and women would be to increase the annuity [of a woman] age 60 by 2%; and to reduce the annuity of a man aged 60 by 3%.”

Peter Quinton, managing director at pensions specialists the Annuity Bureau, adds: “At the moment, changing the law would be detrimental to both women and men. Most annuities are bought by married men. A man aged 65 will tend to survive another 20 years and he will be outlived by his wife for a further two years. So they would both receive a lower pension, with any benefits only appearing in the final two years, if the woman has a pension in her own right.”

Quinton admits this picture may change in the next 10 or 20 years, as more single women retire with their own pensions. But he points to the potential unfairness of a retired miner from Scotland or the north of England, with higher mortality rate than average and currently offered higher pensions as a result, being disadvantaged by a “wealthy female executive living in Surrey” who will outlive him.

While there may be benefits to future generations of women from gender-equal pensions, removing sex as the basis for deciding insurance premiums would also have unexpected consequences in other areas, the FSA argues.

McCarthy claimed this week: “The premium payable by a woman aged 40 for life cover is likely to increase by 16%, against a fall in a man’s premium at the same age of 8%. For motor insurance, young women drivers are likely to face an increase in premiums of between 10% and 30%.”

An AA spokesman says women’s lower motor premiums reflect the fact that, generally, they are more careful drivers than men: “The number of accidents they have might be similar, but they will be far less serious than men. Unlike men, they don’t see a car as an extension of their virility.

“The amount they claim for is generally less. Of course, if the directive goes through, all of this would become irrelevant.”

A recent survey by Direct Line, the insurer owned by Royal Bank of Scotland, found that those likely to be penalised the most would be young women – and elderly men.

A 17-year-old girl currently pays an average motor insurance premium of £1293, while a male of the same age pays £1951. The EU’s proposal would lead to “equalised” premiums of £1800, some £500 more. For 80-year-old men, who currently pay £429 on average, premiums would rise to £520. Women, whose premiums are currently £565, would only save £45 a year.

A Direct Line spokeswoman says: “Introducing this law would be a step in the wrong direction – it goes against the message that safe motorists are rewarded for their driving and motorists who present a higher risk can’t get away with it.”

Scotland’s financial advisers are also against the proposed directive. Carl Melvin, managing director at Millbrae Financial Services, in Paisley, says: “I am all in favour of equality between men and women, but to penalise one group over another won’t benefit either in the long run.”

Melvin points to previous European judgements on equal retirement ages as examples of how the law can work against both sexes. The 1990 “Barber judgement” by the European Court found that men were discriminated against in terms of their later retirement age compared with women. The UK government’s answer was simply to raise women’s retirement age from 60 to 65.

Ailsa Brown, managing director at Gilliland, Neilson, Brown, in Glasgow, says: “I would have to say that I am against the idea. The way things are at the moment may not always produce a good outcome, but they are the fairest in that they reflect life expectancy.”

She adds that in cases where a woman’s income is expected to fall, often after the death of her spouse, it is possible for financial advisers to take this into account by structuring annuities to pay out at different times. For example, by leaving a woman’s own pension pot untouched until later, and then arranging for it to pay out only on a “single life” basis when she is widowed, so that its value is higher.

Regardless of its merits, the proposal must now be ratified by the Council of EU leaders, a process that could take years. Until then women will continue to receive lower pensions – but pay less for their car insurance.

25 April 2004

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