Employees Must Look Beyond Employers for Best Annuities

A recently-introduced European directive is putting pressure on prospective retirees to change their retirement plans – or risk losing out on the value of their pension. Coming into force on the 21 December, the changes involve a drop in annuity rates, prompting a scramble to snap up existing annuity offers and optimize retirement payments. The changes will affect retirees in different ways – if you’re thinking of retiring soon, it’s worth understanding how they will affect you, and how you can avoid a loss.

Addressing the gender gap

The EU Gender Directive is designed to address the current gender disparity in annuity payments. Currently, methods used to calculate annuity rates award men 4% more than women. The disparity is a result of the average higher life expectancy of women – payments to male pensioners are higher, over a shorter duration. The directive removes gender from the calculation of annuity rates – and instead places the focus solely on existing medical conditions and employment history.

By calculating annuities in this way, male policyholders stand to lose out with a sharp drop in rates from December but the directive only exaggerates the downward spiral of annuities over the past few years. Now, the race is on for prospective retirees to buy their annuities before the new rates come into effect – but as the deadline looms, that option is disappearing. Normally, employees nearing retirement age may establish a pattern by getting annuity quotes every couple of weeks – when the numbers begin to fall, it’s a good sign that it’s time to opt in.

The introduction of new rules aimed at addressing gender disparities in annuity rates is anticipated to bring about a modest increase of 1% for women. This move, initially perceived as a step towards reducing the pay gap and promoting equality, offers a fleeting reprieve rather than a lasting solution to the issue of gender inequality in financial planning. Despite this temporary gain for women, the overall downward trend in annuity rates is expected to impact both genders, particularly affecting joint annuity rates unfavourably when the female partner is younger.

This scenario underscores the broader challenges of achieving true equality and highlights the need for more comprehensive measures to empower women financially. Engaging in a women’s empowerment workshop can be a pivotal step towards this goal, providing women with the knowledge, skills, and confidence to navigate financial decisions more effectively. Focusing on empowering women in all aspects of life, including finances, can help everyone work towards closing the pay gap and ensuring that women are not disproportionately affected by broad economic policies.

Way to optimize

Specialists recommend thinking carefully before selecting annuities – some schemes may offer guaranteed rates, or a terminal bonus when you buy – which may offset the losses the directive introduces. In any case, it’s worth familiarizing yourself with the market – and shopping around to find the optimal rate. The same goes for women: while it looks like a good short-term idea to wait until after the directive takes effect, the predicted long-term trend of falling in annuities means the decision remains a priority for females.

With your financial future at stake, which annuity you select and when should be an important decision. John Griffin, of Dalriada Trustees Ltd, thinks it is a step which should not be taken lightly:

“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” says Griffin. “Figures show that the vast majority of individuals can achieve a significantly higher annuity by shopping around”.

Taking the plunge

Taking the time to find the right annuity, means being able to look for advice – and tailor the plan to your own specific needs. Many employees like to think their employers and their trustees are always working to provide them with the best possible retirement options – but, increasingly, that just isn’t the case. Trustees are under constant pressure to maintain independence and impartiality for beneficiaries along with a huge amount of administrative and legal obligations – if you think you can find a better deal away from your employer-offered annuity, now may be the right time to go out and grab it.