Pensions rule helps no one

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WOMEN live, on average, five years longer than men.

This has always been taken into account when it comes to pensions arithmetic. Hence a fund of pounds 100,000 would buy a man a pension of pounds 9,300 a year, while a woman with the same pensions savings would get just pounds 8,000 a year.

This recognition of a statistical difference between the sexes looks like coming to an end shortly, and it is likely to please neither men nor women.

Last week, the Advocate General of the European Court of Justice handed down his ruling on sex equality in pensions. This is not the end of the matter, but his views will probably be followed when the full judgment is made later in the year.

The question of gender distinctions in pensions policy was addressed in part on 17 May 1990, when a test case covering the Coloroll company (now deceased) ruled that all should be treated equally.

The remaining question was whether that should be applied retrospectively, or whether it was only for service from that now-famous date onwards.

The Advocate General plumped for a new start from May 1990.

There have been sighs of relief from British industry, which reckons that the judgment has saved it pounds 40bn. That shows just how unequal the treatment had been.

But the more intriguing part of the judgment referred to unisex annuity rates. Annuities are the promise of a stream of income for life - however long or short that might be - in return for a lump sum.

With separate life expectancy tables for men and women, the same lump sum buys a larger monthly pension for a man than a woman. Unisex tables in America led to a levelling down. There was no averaging in practice - men's pensions came down to the same level as women's. That, of course, would not be popular with European men.

Roger Key, a partner at actuaries Watsons, says: 'There were no winners - only losers.'

On the other hand, the business works the other way around. There is now complete freedom to trundle pensions savings around from scheme to scheme, in and out of personal pensions and company schemes that build up pensions by reference to years of service.

When someone is taking his or her pensions savings from one scheme to another, a transfer value is calculated. On cash-based plans, that is easy. But on service-based schemes, a calculation has to be made to determine the lump sum that would be needed to buy the stream of income in retirement that has already been built up in the pension.

If unisex tables are to start applying, women's transfer values could be cut by up to 20 per cent, because the larger sums that are needed now to buy the same income in retirement for a woman as for a man will be ignored.

Currently, a man and a woman saving in an identical pensions scheme that relies entirely on a build-up of investments will not enjoy equal comforts in old age.

When the equality in pensions argument branches out from traditional company schemes, there is some confusion over whether the focus of equality should be the lump sum or transfer value, or the pension in payment.

The judgment also touched on additional voluntary contributions (AVCs), which would appear to be beyond the remit of looking at pensions in the context of the employment relationship.

But once this pensions tangle is disturbed, the ramifications touch distant points. Mr Key believes the European Court may not be able to force insurance companies to offer unisex annuities - only companies that pay out their own pensions.

This debate is surely going to run and run. Can equal state pension ages now be far away?

ON THE subject of annuities, a doctor points out that policyholders are given a thorough medical when they take out a life insurance policy. Yet, he adds, there is no question of a medical to determine on what terms an annuity should be paid.

If the breakdown between men and women really does come about, there could be pressure for finer definitions using other criteria.

Smokers and non-smokers surely have different life expectancies. But insurance companies say they could not possibly offer smokers higher pension payments as it might serve to encourage this nasty habit.

And would they have to send round spies to make sure that the pensioner had not given up?