Monday 16 April 2012

Urgent need for UK consumers to review pensions and investments

Changes on their way mean that it's high time to review your insurance - and pensions.

Gender-neutrality law to increase costs for both men and women

By 21st December this year, the UK insurance industry will have to comply with the EU Gender Directive, which insists that men and women must be treated the same when setting rates. Up to now, by and large:

  • women tend to pay less for car insurance (typically, safer driver behaviour than men's) and life insurance (on average, women live longer than men)
  • men tend to get better annuity rates when taking benefits from their pensions, and pay less for income insurance
You might think that the fair thing to do, where gender-related pricing is concerned, is "meet in the middle", but that means the insurance company takes the risk that it may attract more business from the gender that will ultimately cost them more in payouts. So it could well be that the policy adopted will be to "level-up" premiums.

Time to get a product with guaranteed (i.e. fixed) premiums?

Taxation of life companies likely to increase premiums

But there's another change that will affect premiums, and it's to do with tax. Until now, life companies have been able to offset some of their insurance costs against gains on their investment business; this will stop from 1st January next year, so insurance premiums will no longer be subsidised by investment profits in this way. Actuaries have told HM Treasury (PDF) that this could raise premiums on some term insurances by around 10%.

Time to get a product with guaranteed (i.e. fixed) premiums?

Spouse cover and contracted-out pensions: better options now available

From April 6, 2012 the law on pensions has changed. Up to now, if you were married and some of your personal pension was built up using money from contracting-out of State top-up pensions (SERPS/S2P), that part of your pension fund had to provide a continuing income for your spouse if you died before him/her. This restriction has now been removed.

This means:

  • you can have a bigger pension income for yourself, if you opt not to include spouse protection (it may be that your spouse already has good pension benefits of his/her own), but alternatively...
  • if you prefer, you can IMPROVE spouse protection - before April 6, the spouse pension based on contracted-out monies HAD to drop to 50% of the income you were getting; now, it can be anything from 0% - 100% of yours.
For men who want a single-life annuity, this may also be a window of opportunity to get a better rate, before the gender-neutrality law comes into effect in December.

That said, there is also the question of what may happen on the stockmarkets (quite possibly affecting the value of your pension fund, unless you're in cash), and the bond markets (which influence annuity rates).

Time to review when you want to take your pension, what it's invested in at the moment, and how you ultimately intend to take the benefits?

I suggest you contact your adviser soon!

INVESTMENT DISCLOSURE: None. Still in cash (and index-linked National Savings Certificates), and missing all those day-trading opportunities.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content.

1 comment:

1COLD - insulated panel and refrigeration said...

Thankyou for this excellent advice. Several aspects apply to me and I will be contacting you for a review shortly.
Kind Regards
Tony Cook