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Pensions Bill

I thank the noble Baroness, Lady Howe, for the amendment. Like others, I pay tribute to her persistence on the issue, about which she feels passionately. I am sure that everyone agrees that an unfair and unjustifiable difference in treatment of a person based on their gender is discriminatory and unacceptable. However, the Government do not believe that differential insurance pricing based on relevant and accurate data constitutes unfair discrimination. In the annuity market, that means that insurers should be allowed to take into account all relevant data on people’s life expectancies and price accordingly. When people come to purchase their annuity, a provider will offer them an annuity rate that is based on their life expectancy. That can be affected by several factors, such as lifestyle—for example, smoking—any known health issues and gender. Recently, insurers have started to take into account a wider range of factors, such as postcodes, to ensure that they make the most accurate assessment of their customers’ longevity. In other words, annuity pricing works on an objective basis, looking at relevant factors, including gender, that influence longevity. Noble Lords will recognise that the consequence of taking account of postcodes will typically mean that individuals in poorer neighbourhoods with lower life expectancies should get better rates than individuals in more affluent neighbourhoods—an outcome that we would presumably welcome. It is a fact that, in general, women live longer than men. The pension fund that they have accumulated needs to provide them with an income for the rest of their life, and over the lifetime of the annuity they are, on average, likely to receive payments for longer. At every age from 65, women continue to have a longer life expectancy than men. The important variable is the amount that the average person receives over the whole life of the product, not a snapshot based on the income for a small part of the product’s lifetime. Annuity providers base their rates on the expected life expectancy of a group of cohorts; that is mortality pooling. It is one of the main reasons that annuities are seen as a good way in which to provide an income in retirement. The amendment seeks to mandate unisex annuities, which would, in all likelihood, cause a fall in average annuity rates, because firms would not know in advance the proportions of men and women who might buy their annuities. They are therefore likely to include margins in their pricing of products to cover the risk that their assumption is incorrect; they may also be required to hold more capital to cover this risk—or, indeed, to indulge in the sort of practices at which the noble Lord, Lord Oakeshott, hinted. Although over time insurers would learn to assess this risk more accurately, it would remain a risk, which would have to be reflected in pricing and capital. In other words, because insurers would have to price in the risk of getting a large number of longer-living women in their annuity pool, rates on average would fall; so, overall, pension savers would be likely to lose out from this proposal. We should remember that the principle of taking into account gender differences in insurance pricing applies widely. Based on evidence, younger women benefit from lower life insurance premiums than men of equivalent age. The evidence used for this differential pricing is based on the same principles as those for annuity rates. Earlier this year, the Government introduced changes to the Sex Discrimination Act, implementing the EU equal treatment directive. Under the new rules, gender-based differences in annuity rates and all other insurance pricing are allowed only when they are based on relevant and accurate actuarial and statistical data. If male and female longevity continue to converge, as has been the recent trend, that will be reflected in a convergence in male and female annuity rates, as the noble Lord, Lord Hunt, confirmed. The Sex Discrimination Act also gives people the right to challenge insurers if they feel they have been unfairly discriminated against because of their gender. In its research on unisex annuities published in 2004, the Pensions Policy Institute concluded that, "““the impact on overall retirement income from compulsory unisex annuity rates would be small. More people would see lower retirement income, and not even all women who have annuities would see higher incomes. Many women with annuities would not have access to competitive annuity rates, and might not get a better deal than today. Lower male annuity rates would also lead to wives who rely on their husband’s income seeing lower income in retirement””." The noble Baroness, Lady Howe, and my noble friend Lady Hollis drew a comparison between final salary schemes and annuity rates. I take their point, but an annuity is a risk-based product and you have to apply the rules of the market to identify the outcomes from that. As for the differentials in life expectancy, the noble Lord, Lord Oakeshott, touched on the current position. In 2010, male expectation of life at 65 is estimated to be 21.8 years, while women’s expectation of life at 65 is estimated at 24.6 years. When pension ages are equalised at 2020, that would be 22.9 years for a male and 25.7 for a female. The underlying proposition has not changed since the PPI research was published. Annuity rates for men and women may not be the same, but in our view they are none the less fair and equitable. I hope the noble Baroness understands our reasons for objecting to the amendment. I understand that it is a probing amendment, and I know that she will continue to campaign on the issue.