How pension changes could affect you

Anyone with a money-purchase (or defined-contribution) pension who is planning to retire soon is really up against it. Annuity rates, which determine the income level you get from your investment pot on retirement, have fallen by about 20% in the last five years. That's due in part to the poor performance of equity markets since the financial crisis and the government's gilt-buying programme, which has depressed yields and therefore returns from annuities. It's a double whammy and the pain is being passed on to you.

However, if you're a woman there is one bright spot. Last year the European Court of Justice decided that insurers could not allocate different insurance rates according to gender. This ruling affects pensions because annuities are classed as a form of insurance. Traditionally, pension providers had offered women lower annuity rates so that the money would last the extra five years that an average British woman lives. But from 21 December women must be offered the same annuity rates as men.

Not everyone opts for an annuity on retirement. You can chose to leave your money invested in the stockmarket and draw down a certain amount each year. There's some good news for women here too.

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Until now, the pension industry in Britain had remained pretty quiet on this issue, says Ashley Wassall in FT Adviser. But "HM Revenue and Customs has broken the industry silence" and updated it's guidance "to force providers to use the higher male rates to determine maximum drawdown". According to consumer website Which? HMRC's decision will let 65-year-old women take 8% more income in drawdown and 11% more if they live to 80 (on average, British women live to 82.3, says the BBC).

But things don't look so good for men. The changes will see annuity rates "improve a bit for women and worsen for men", says Michelle McGagh in Citywire Money. Male rates could fall by as muchas 4% as annuity providers adjust overall rates down to avoid being penalised by the gender ruling. However, there's also one bright spot where men are concerned.

Men may be able to get around the new ruling if they have an occupational (work based) pension, as the Court's decision was based on the provision of goods of services to individuals, not organisations. It's still in the hands of the lawyers, says John Greenwood in Money Marketing. But "we could get a situation where a male can get a better conventional annuity rate at retirement if it is bought for him by his trustees". It's a space worth watching. by James McKeigue