The Financial Group
We simplify all those essential financial decisions
THE EDUCATION SECTION Every month we look at a particular financial topic in a little more detail. This month it is the EU Gender Directive & ‘I minus E’ ____________________________ What is the EU Gender Directive (G Day)? From   21   December   2012,   premiums   and   benefits   for   all   new   insurance   contracts   will   have   to   be   calculated   on   a gender-neutral basis. Insurance   spans   a   wide   range   of   contracts   that   currently   use   gender   as   a   risk   rating   factor.   This   includes   car insurance, retirement annuities & life insurance. In   this   article   we   concentrate   on   the   affect   these   changes   will   have   on   life   &   health   protection   policies   as   well   as retirement annuities. In   the   field   of   financial   services   all   new   policies   which   start   (ie:   have   been   underwritten   &   go   on   risk)   on   or   after   21 December 2012 will have to be priced on a gender neutral basis. These will include - o retirement annuities o individual income protection o critical illness & o life insurance policies What is the I minus E calculation? The   I   minus   E   (that's   income   minus   expenses)   taxation   regime   currently   allows   providers   to   offset   the   costs   of their life insurance business, from the profits made on their investments. For new policies that go on risk from 1 January 2013, this will no longer be allowed. Whilst   closing   this   'loophole'   will   raise   more   revenue   for   HM   Treasury,   it's   set   to   push   up   life   insurance   costs   for insurers - which inevitably will get passed on to consumers through higher premiums. The   increases   to   premiums   will   affect   both   life   insurance   and   critical   illness   cover   (as   most   critical   illness   is combined   with   life   cover).   The   affect   of   I   minus   E   is   likely   to   wipe   out   any   advantageous   changes   in   premiums resulting from the Gender Directive discussed above. How will these changes affect your insurance premiums? The   cumulative   effects   of   Gender   and   I   minus   E   are   likely   to   result   in   the   cost   of   life   and   critical   illness   increasing for most people but to what extent, will depend on their gender (amongst other factors). The   table   below   is   designed   to   give   you   an   indication   of   how   prices   might   change   across   the   market   post   G-Day.   It comes   with   caveats   however.   There   are   so   many   factors   that   affect   premiums   that   it   is   impossible   to   give   a   single definitive   figure   that   will   apply   to   everyone.   The   extent   of   change   will   vary   by   provider,   will   differ   by   product   class and   be   determined   by   your   individual   circumstances.   Added   to   this,   we   expect   to   witness   a   fair   amount   of   re- pricing activity in early 2013 as providers attempt to get to grips with the new gender neutral world. The   figures   we   use   are   based   on   our   analysis   of   the   entire   market   and   some   of   the   predictions   made   by   key stakeholders and experts, and can serve as a useful high level guide. Product type Currently, on average . .     Potential impact to premiums      Male Female Income protection Women pay 65% more than men   +20%   -28%   Critical illness(with life) Men pay 10% more than women   +6%   +16%   Term insurance Men pay 10% more than women   +3%   +22%   Whole of life Men pay 20% more than women   -5%   +15%   Where will rates settle? Gender   neutral   rates   will   not   simply   settle   in   the   middle,   and   are   likely   to   lean   towards   the   more   expensive   sex. This   is   due   to   a   number   of   reasons,   including   the   historic   and   estimated   mix   of   business   (between   genders),   the effect of gender across the expected policyholder population and other influencing risk factors. How will these changes affect annuity rates? When people retire, many will choose to secure a future income by purchasing an annuity. The   amount   of   annual   income   that   you   can   buy   will   vary   depending   on   a   number   of   factors   -   primarily   the   size   of your pension pot. At the moment, these factors also include whether you are male or female - but this is about to change on G- Day. Annuity   rates   could   fall   3%   to   4%   for   men,   while   women's   rates   could   increase   by   1%   to   2%,   according   to retirement income company MGM Advantage. Therefore   a   man   may   believe   it   is   best   to   buy   an   annuity   before   the   gender   directive   comes   into   force   in   the   hope of   achieving   a   higher   income.   However,   this   decision   should   not   be   rushed   into,   an   annuity   purchase   is   for   life,   so   it is just as important to ensure that the product is right, as it is to maximise the annuity rate. Meanwhile,   women   may   be   tempted   to   defer   buying   an   annuity   until   after   the   gender   directive   takes   effect. However,   this   is   not   a   risk-free   decision   either,   as   it   is   difficult   to   say   what   rates   will   be   offered   immediately   after the rule change comes into force. Also women should consider the income they would miss out on in the meantime. The potential impact! Hover over any of the headings below to see the potential impact of these changes - o Term insurance o Critical illness cover o Income protection cover o Whole of life cover