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The Actuary The magazine of the Institute & Faculty of Actuaries

Risk classification controversy

The Equal Opportunities Commission has said it particularly supports the plans put forward by Anna Diamantopoulou, the European social affairs commissioner, to change the way annuity payments made to women in retirement were calculated, as many women suffered poverty in old age. The EOC said:

‘Women’s average income in retirement is only just over half of men’s and many spend their old age living on the breadline. This is because they are paid less on average than men throughout their working lives and often have more fragmented working patterns because they take on more responsibility for childcare The fact that women also receive lower annuity rates leaves many even worse off in old age and will affect more women in the future as an increasing number of pension schemes involve buying an annuity.’

The EOC has been campaigning for the removal of a clause from the UK’s 1975 Sex Discrimination Act that excludes challenges under the legislation to annuity and other insurance products, so long as they are are based on ‘reasonable’ actuarial data. The UK watchdog would like to see all premiums and risks for men and women pooled.

Ms Diamantopoulou wants to tackle sex discrimination in the calculation of risk. She has begun consultation with insurers and hopes to get the draft directive approved by the Commission in July. The final measure will have to be endorsed unanimously by all member states and there is likely to be fierce lobbying. European insurers will argue there are good reasons for sex-based pricing and that costs of complying could be massive.

The Commission argues that it is not fair to assume that all women live longer than men: ‘There are many other factors, including lifestyle and the family medical history.’

There are differing views among actuaries around the world on what is or is not acceptable in terms of risk classification – we would like to hear from male and female readers on the subject of unisex pricing!