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I have two further arguments to put to the Minister in support of my case. First, a final-salary company pension scheme will pay an equal annual sum to employees of either sex who have reached a common statutory retirement age of, say, 65, and who retire at the same management level. Each will receive the same annual pension for the rest of their lives. What possible justification is there, then, for continuing sex discrimination in annuities on the basis that women live for a tiny percentage of years longer than men? Secondly, the new equality legislation will outlaw discrimination on the grounds of age, which presumably includes longevity, and make illegal different pay for men and women working for the same employer at the same job level. This surely strengthens my case. When the equality Bill is passed, will the Government instruct insurance companies to quote exactly the same annual sum for both sexes from the same pot? I gather that I am going to be disappointed, but I hope that I shall be given rather more detail about the reasons why.

When the noble Baroness, Lady Andrews, repeated the equality Bill Statement on 26 June, I asked her what effect this Bill, covering as it will both age discrimination and sex discrimination in pay, will have on the annuity situation. I cannot claim that she said that, once passed, the equality Bill would provide an instant solution to this injustice. However, I was encouraged when she said that the issue, although “extremely sensitive”, was both “very important” and,

I certainly hope that there will be.

As I said, this is a probing amendment. I look forward very much to hearing the contributions of other noble Lords and particularly the Minister’s reply. I beg to move.

Baroness Hollis of Heigham: I support very much the amendment moved so ably by the noble Baroness, Lady Howe. Most of us know the arguments for and against unisex annuities. The arguments for them state that unequal payments are discriminatory, that different life expectancies are irrelevant as there is considerable overlap of the age at which most people die, that they would increase women’s retirement incomes, and that gender is increasingly less relevant compared with health and smoking for annuity pricing. In the arguments against them we may be told that women live longer and therefore their total income produces a broadly similar financial package, that they would cost more for men and therefore reduce couple income, and that they could have a knock-on effect on other areas of insurance policy such as car insurance.



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As the noble Baroness argued so well, not having unisex annuities is clearly discriminatory. We do not permit discrimination in employment law, and pensions are deferred pay. In the United States and Canada, annuities bought with employment-funded sums must be unisex—in the strongholds of capitalism it is unisex—and the market may not judge by gender. A similar rule would make all DC payments unisex just as DB pension payments are. Unisex annuities are also used in the state pension system in the UK and Sweden.

Would anyone in the House believe, as the noble Baroness said, that a DB occupational pension should pay out different pensions for the same pay and years? Should a woman teacher, police officer or civil servant retiring at the same age and on the same pay as a male colleague receive a lower final-salary pension? I cannot believe that anyone in the House would support that, yet we are allowing it to happen in DC schemes because it suits and is easy for the private market. Do we think it acceptable that two office managers, a man and a woman, on the same pay and service, in a final salary scheme for 20 years and with the same pension promise, should expect, when the employer closes that scheme and switches over to a DC scheme, to receive unequal pensions for the next 15 years as a result of the employer’s decision? Is that fair? It is clearly discriminatory.

A couple of years ago the Pensions Policy Institute carried out some useful research on the effect of unisex annuities on men’s and women’s financial returns. It found that unisex annuities, despite widespread belief, would not damage men’s retirement income and could usefully improve women’s. In any case, annuity income for most pensioners is only a minor part of their retirement income, which is largely dependent on state benefits.

The PPI research showed that at 65 the best unisex rates are the same as a male annuity rate, which is 14 per cent higher than the comparable female figure. The PPI’s figures on £50,000 in 2004-05 were: £2,754 for a woman, £3,149 for a male and £3,151 for a unisex annuity. Win, win. In a competitive market where it was compulsory, the PPI calculates, the male rate might reduce fractionally by, at worst, 3 per cent and the women’s rate would improve considerably, by 10 per cent or more. Annuity rates today, of course, are somewhat higher.

It is true that women who only have access to income from their husband’s annuity might lose out if his income took a tiny drop. The identical argument was used against equal pay in the 1950s and the 1960s—that married women were dependent on their husband’s wage and would therefore lose out if other women got equal pay and possibly depressed male rates—and it took the law and Barbara Castle to say that such discrimination was not acceptable. We should say the same about pensions. In any case, three-quarters of annuities are single life, so wives are unaffected, and with joint life annuities, as I have said, there is virtually no difference between the male and the unisex rate. We expect to see women develop their own pensions. If the gains and losses are relatively tiny and it is fair to pay men and women the same final-salary pensions, it is discriminatory not to do so in DC pensions, especially as DB schemes fold into DC schemes.



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Life expectancy between men and women is narrowing, as the noble Baroness, Lady Howe, said, but life expectancy by social class is wider and widening. Presumably that is why Aviva is going for postcode rates. Let me remind the House of the statistics. Twenty years ago, women lived on average 5.7 years longer than men, and the gap between social class 1 at the top and social class 5 at the bottom was also 5.7 years. Now we are all living longer, but what has happened to the differentials? Women are living three years longer than men—down from 5.7 years—but the social class gap, to my sorrow, has widened from 5.7 to seven years. So the social class gap is now double that of the gender gap and the predictor at 65 shows the same tendency, although not quite as marked. So, if companies wish to cherry-pick they should give those of us with degrees, as a proxy for social class, less favourable terms than those without. Higher education should matter more than high heels in determining annuity rates.

Essentially the market is lazy. It finds it easier to identify gender than it does class, and too many men—although, I am sure, not in your Lordships’ House today—are happy to collude with artificial annuity rates that unfairly discriminate against women. As I say, we do not discriminate in final-salary schemes or in state schemes, and we should not allow discrimination in DC schemes—including, in the Bill we are debating today, personal accounts.

3.30 pm

Lord Hunt of Wirral: I declare my interest, which is in the register of interests, as a partner in the national commercial law firm Beachcroft, as president of the Chartered Insurance Institute and as chairman of the Life Trust Foundation.

I pay tribute to the noble Baroness, Lady Howe of Idlicote, for her remarkable perseverance and the tremendous amount of work she has done in the area of equality. I recall that I used to be harassed—sorry, contacted—by the noble Baroness when she chaired the Equal Opportunities Commission, where she did very good work. As I think she recognised, though, we are dealing with a reflection of life expectancy—she has already conceded that point—and the price-per-risk principle that lies behind insurance products.

There is, however, some reasonably good news, as both the noble Baroness and the noble Baroness, Lady Hollis, have just referred to: namely, the life expectancy tables. I shall come back to social class in just a moment. The good news for us men is that our life expectancy is increasing at a far greater rate than that for women. The exact figures in the latest national statistics are that, in the past 25 years, life expectancy at the age of 65 has increased by four years for men and by two point eight years for females. Whatever one says, the noble Baroness will eventually achieve her objective because there will be an equalisation of life expectancy; it is only a matter of time.

I should also declare another interest: I have become an honorary fellow of the Institute of Actuaries. Attending actuarial meetings is a wonderful experience because the general principle is that the longer you live, the

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longer you will live. It is a wonderful feeling when you emerge from these highly academic meetings knowing that you are going to live longer than you originally thought you were.

I say to the noble Baroness, Lady Hollis, that changes are proposed in the methods used to estimate life expectancy by social class using the longitudinal study by the Office for National Statistics. I refer her—although, knowing her, she has probably already read it—to the work by Louisa Blackwell and Brian Johnson of last autumn in Health Statistics Quarterly.

We will see how the debate develops, but at present it is difficult to find support for the noble Baroness. Over their lifetimes, individuals, whether they are male or female, will receive the equivalent value in exchange for the same-sized pension pot. That is the point that leads me to believe that her amendment should not succeed.

Lord Oakeshott of Seagrove Bay: I rise with the words of my noble friend Lady Thomas ringing in my ears: “Say something nice, won’t you, Matthew”. So I will try.

I start by paying tribute to the noble Baroness, Lady Howe. She may not know it, but in the dim and distant past I was special adviser to Roy Jenkins when he was Home Secretary, and I remember many meetings considering and discussing the scope of the Sex Discrimination Act. We decided not to introduce this sort of amendment, but life moves on.

I am sorry to disappoint the noble Baronesses, Lady Howe of Idlicote and Lady Hollis of Heigham, on this amendment, given that we agree on so much. As the noble Lord, Lord Hunt, said, the gap in life expectancy between men and women has narrowed a bit but it is still substantial. It is life expectancy at 65 that matters, because that is the age at which one generally buys an annuity. I would be surprised if the gap were as little as three years at that level, but even if it is, that is very significant. We are not talking about 3 per cent or 4 per cent; three years on an expected life of, say, 20 years, is 14 per cent or 15 per cent, as borne out by the figure given by the noble Baroness, Lady Hollis. That is a significant difference in actuarial expectancy and the rate quoted by somebody in the market who is trying to make a profit.

I did not agree with the noble Baroness, Lady Hollis, or with the PPI calculations. The best rate in the market can be 15 per cent better than the average, but by definition the best is not the average. On average, there is still a big difference. If everyone started getting the best rate, the market would then change very quickly.

We will be moving amendments to encourage the widest choice, and annuities to be offered on the most actuarially correct basis. The noble Baroness, Lady Hollis, talked about social class. Will we say that insurance companies have to offer exactly the same rate for every social class? To carry the argument to its logical conclusion, we would have to offer the same rate for annuities to everyone, whatever their age, otherwise it would be age discrimination. There is a genuine theoretical problem and we are in favour of not interfering with the market. If there is a genuine and significant difference in life expectancy, whatever

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groups are involved, then, sadly, people should be free to quote accordingly. One cannot just say that this approach is wrong and that every other way of pitching this so that it is correctly market-adjusted is right. If such an amendment were passed, insurance companies would, for perfectly understandable reasons, try very hard to find ways of not selling annuities to women. Women would not be best served; unless there were a Star Chamber, the market would not work.

I am sorry, but there is a genuine problem. Let us hope that the gap in life expectancy between men and women continues to narrow so there will not be a problem in future. As my noble friend Lord McNally said, if we are looking at social class, the people who ought to be paying the highest possible prices for their annuities are Members of this House.

Lord Wright of Richmond: I should like to add to the tributes to the noble Baroness, Lady Howe of Idlicote, for her perseverance. When I was Permanent Under-Secretary in the Foreign and Commonwealth Office, I was working for her noble kinsman, the noble and learned Lord, Lord Howe of Aberavon. He used regularly to question me about equal opportunities in the Diplomatic Service. It was no coincidence at all that he had just come from having breakfast with the noble Baroness.

Lord Skelmersdale: I find this amendment, introduced so ably by the noble Baroness, Lady Howe of Idlicote, a little strange. It talks only about men and women reaching a common retirement age. Is that really what she wants? Does she not also want to cover compulsory annuities at 75? It seems illogical not to cover both aspects. I much dislike compulsory annuities, which we shall come on to with the next amendment, but I am the first to admit that it makes sense in many cases for pensioners to take out an annuity at retirement age—the Minister surely agrees.

Having got that off my chest, I agree with what the Minister said at Question Time today. I am afraid that, even if it is only three years, a difference still exists between the life expectancies of men and of women. If an insurance company is to annuitise a lump-sum pension or any saving, the subsequent annual income will need to be spread for more—possibly many more—years. It is thus inevitable that a woman’s annual income will be lower than that of a man, given the same percentage conversion rate. We have already heard figures on that and I will say nothing about my own researches unless I am driven to do so.

To insist that private companies disregard the reality, whether it be that women tend to live longer or young men to drive faster, or that people of either sex ski off piste and therefore attract bigger insurance premiums—

Lord Oakeshott of Seagrove Bay: Smoking.

Lord Skelmersdale: Even smoking, of which I am guilty, and of which a noble Lord on the Front Bench opposite has been guilty in the past.

How far does the noble Baroness hope that her equality proposals will go? Would private health insurers—on which the noble Lord tempts me—have to raise women’s premiums because of the possibility

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of prostate cancer? That would be ridiculous. As I said, why stop at sex equality? Why should not travel insurance companies be able to charge more if people plan on their winter holiday to ski off piste rather than in the normal run of things? Competition between providers already protects the consumer against unreasonable discounting on the ground of gender. Any remaining discount for women is therefore merely a reflection of the extra money that they will receive as a result of living longer.

The figures that the noble Baroness, Lady Hollis, has produced will inevitably come together over time. I agree with my noble friend, Lord Hunt, on that and I see no reason for the amendment.

Baroness Turner of Camden: I support the amendment and commend the noble Baroness for introducing it. I have listened carefully to what has been said in opposition, but the amendment takes a large step in the right direction, because it refers not to the difference in life expectancy—that may change over time, as everybody has said—but to,

As we are moving in the direction of a common retirement age, that is a good step in the right direction.

The amendment stipulates that,

there should be equality of treatment by the financial services industry. That objective is legitimate and should receive the Committee’s support.

The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord McKenzie of Luton): 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

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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.

3.45 pm

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 noble Baroness, Lady Howe, and my noble friend Lady Hollis drew a comparison between final salary schemes and annuity rates. I take their point,

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but an annuity is a risk-based product and you have to apply the rules of the market to identify the outcomes from that.


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