Annuities cost more for women: it's time for unisex rates

I guess this means I should have a higher annuity component in my super than my husband. Gives us a bit of an advantage but isn’t it subsidised by guys dying earlier? Not so good for single guys.

Its been said but I think needs repeating. The total payment is amount paid x years of payment. To note the amount paid is lower for women but to miss they on average get paid for longer is woke cherry picking of facts. Its like saying "gee the youngsters are paying a fortune for housing" when you totally ignore the interest component of the total repayment over the life of a mortgage. I would hope in firstlinks we have an audience who are above such simplistic and overtly emotional arguments, that morning telly's territory.....

If annuitisation were compulsory and for gender equity (or any other) reasons, government believed it had a social mandate to require unisex rating, so that males subsidised female annuity rates, that could work. We have enforced cross-subsidies in health insurance, for example.

But it does not seem appropriate in the current context of private sector annuity provision, in a system where life annuities are chosen for the time being by only a very small minority of retirees, to force private sector insurers to adopt unisex rating. A likely consequence would be that only those for whom the offered rates would be perceived as attractive would take out the annuities. Annuity providers that wanted to remain solvent would be forced to recognise this in their pricing so their “unisex” rates would be close to their former female rates. So females wouldn’t gain (much) but males would lose a lot. Would that be progress?

Thank you for all your comments. A couple of years ago I would have responded in a similar way.

However, mortality rates (and hence life expectancy) is influenced by many factors and sex is a relatively minor one. Socio economic class reflected by factors such as lifestyle, education, income, access to health services etc. is much more important and we do not factor these into annuity prices.

Australia's retirement income system is endorsed by the government and financially supported by the tax payer through both the age pension and super tax concessions. Apart from annuity pricing, there is no difference on the grounds of sex or gender in the system.

Lifetime annuities may not be that popular at the moment but if we are going to seriously consider the development of products that provide longevity protection for retirees, we need to think about removing any differentiation on the grounds of sex. Some longevity products are already doing just that.

So why pick sex to factor this in ?

You haven't really gone into the implications of any of this. The second paragraph is pure "whataboutism". That some relevant lifespan predicting factors are currently excluded is not an argument for excluding pricing by sex. Why would unisex pricing make "products that provide longevity protection for retirees" easier to develop? Why do we "need to think about removing any differentiation on the grounds of sex?" This para is exhortation with zero argument. In all cases where some factor X (sex, education, class, etc, whatever) is a relevant predictor variable of lifespan, but it isn't used to influence pricing, we have a direct transfer of wealth from the people with shorter expected lifespans to those with longer expected lifespans. In the current system, when a person with great education, high SES, high income (the factors you note) pays the same price for a lifetime annuity as someone (of the same sex) with low SES, poor education, etc, the disadvantaged person is overpaying, and the advantaged person is underpaying. We can agree that that's an issue, I imagine. But removing sex is the exact same thing. Females live longer. Their policies should cost more. If they don't, its a direct wealth transfer from the short-living to the long-living. Removing sex as a pricing factor just means transferring wealth from males to females. I don't doubt that you're fine with that, but I would challenge you to spell out "why" you are fine with that. And using your same logic/politics, why even account for lifespan at all? Why not just price policies for 30 year olds the same as for 60 year olds? That's fair/desirable in your world, right? 30 year olds are generally nowhere near as wealthy as 60 year olds. Wouldn't that also be "addressing inequity" or providing "social justice"? Do you have views on whether or not, in your proposed system, it would be ethical/proper/legal for a couple to just put all their money into their wife's name, and just buy an annuity in her name? That would be the rational choice. So another layer of "inequity" is created, in that married couples would have a big advantage over single people. Are you also OK with that?

I generally follow reasoning that market forces should determine the price and availability of a good or service. If there exist popular social reasons (mandated by way of an election) or market failure then the government should legislate accordingly - but must do so carefully to avoid unsustainable consequences. In my opinion there is no such mandate or need for legislation to enforce unisex annuities. The points argued by David Knox don't attempt to address market failure, but instead appeal to the notion of what is "fair", which is not an election issue (yet), and it is valid to generate debate in an article like this. The Age Pension is not a valid comparison, it is unisex because it is a universal government handout. A private contract (such as insurance) allows for companies to offer insurance at the price of their choosing, and for people to buy the insurance or not. Legislation to set unisex annuities prices would result in females obtaining an expected profit at the expense of males whose contracts become very poor value. This will lead to the distribution being heavily skewed to females. Companies would either withdraw from the market or adjust their unisex prices, making it even more expensive for males, and pretty soon the life annuities market will be almost entirely women and will remain small, which would undo more than half the good work that is being done now to fix the longevity risk problem. Unless the government acts further to reinvent the whole system from the ground up to ensure that suppliers of annuities are not disadvantaged by providing universal coverage with no discrimination, then, no, this private market should allow price and underwriting discrimination. I note that the private health insurance system is set up like this, where taxation effects shepherd youngsters (with good incomes) into the insurance system to pay for the expensive oldies. But I see no impetus for such a socialised longevity scheme because we have such a scheme already, the Age Pension.

Has zero to do with Gender - can be Male vs Male, Female vs Female, Female vs Male. I have run annuity books and to equalize premiums so you can make a "gender neutral claim" is just marketing, woke, nonsense. Risk varies dramatically and often has zero to do with age and often has much more to do with genetics and lifestyle. My wife and I both have multi generations into their 90's, as a "client" I would happily buy an annuity [if rates get off the floor!] but as a "provider", the last people I would want to sell an annuity to are people like us where there is a high prospect of losing money!!

Putting the issue of unisex annuities aside, this article highlights the interesting challenge of navigating the arbitrary boundaries about what explanatory factors are morally acceptable from the perspective of underwriting risks. The actuaries can identify a whole host of characteristics that correlate with risk but are limited to sex, age, and smoking status.

Also, right or wrong, it's hard to see unisex annuities having any impact on Australian retirement outcomes. Lifetime annuities account for only 2% of assets transferring to retirement according to Challenger. It's not like male annuities are flying off the shelf so it seems like there are bigger hurdles to clear first.

To remove the gender discrimination as suggested, the actuarial profession can and should estimate the required funding with a suitable degree of statistical confidence, taking account of the differential life expectancy. A suitable levy payable by senior male actuaries (regardless of sex if any) would be the karmic course to follow??.

I once read that people with SMSFs live longer because they (in general) have more income and can pay for better health services, better lifestyles, access to better food, etc. So should SMSF trustees pay more for annuities?

I can only assume this was supposed to be published on 1 April, but is a tad late

When I studied financial mathematics there was a simple risk relationship in expressed in longevity tables based on the gender of the class recipients. The longer the statistically predicted life time the lower the periodic payment required to extinguish the present value of the basis of the annuity.

As I understand it if the annuity is payable up to the time of death then it is not rocket science to work out that the equivalent annuity payment should be lower because of the longer prospective term all other factors being equal.

Perhaps you could also concentrate on the explicit bias in the pension system whereby women live longer receive longer pensions funded disproportionately by male taxpayers.

To make this issue to go away the government just has to invest in getting male life expectancy up to the same level as female. Problem solved.

or female life expectancy down to men's in which case they would receive the same annuity payment.
"Simples" as they say in the ads

Is anybody else tired of hearing about women's issues? From my point of view, I wished I could look forward to a few extra years to my life.

Isn't the flip side that men pay more for life insurance? Is that unfair too?

Gender pushing gone mad. The current system means if you have the same $ amount and same life expectancy then you get the same annuity. The article concludes that a longer life expectancy for women is a problem we need to overcome. Women live longer than men, people in capital cities live longer than those in regional and remote locations, Aboriginals live less than others. Having an 'equal' system means Aboriginal men in remote locations are subsidising white women in cities.
The system in the article would result in mainly women taking out annuities, so wouldn't solve anything anyway.
Maybe allocating money in a budget to equalising life expectancy is more equitable - and would achieve the outcome proposed at the same time.

Yes, the "selection" point you make is very real. If men don't see value in an annuity, many may be discouraged to buy one?

As noted by the author, the reason annuity rates are lower for women is that they are likely to live longer than men, and therefore the annuity provider will on average have to pay out for more years to a woman than a man assuming they both start with the same amount at the same age. So long as the total amount paid out on average is the same on an inflation adjusted basis, this seems equitable.

A move away from this system requires that one group subsidise the other for what should be purely a business arrangement. Would the author be keen for unisex rates for expenses like car insurance where young men currently pay higher rates than young women?

Nonsense! As you clearly state, women, on average, live longer than men and the insurer, in this case a Life Co, calculates, their risk and their future liability accordingly, investing in Assets that match that Liability. Your proposal is that men should be "paying more" and women "paying less" in the pursuit of unisex nirvana. Or perhaps you want everyone to pay more so the gender flag can be shelved...? I would in fact suggest exactly the opposite - that individual mortality risk should be just that, individual. Every day we see new tools and new tests to more accurately predict risk whether it is health or floods. In General Insurance, lower risk should always be lower cost. For annuities a "lower risk of dying" - male or female, it is the reverse and should be a higher cost as the liability continues for longer. When you attempt to overlay some unisex idealism over insurance basics of risk assessment and matching liabilities with assets, seems to me there will be a lot of unemployed Actuaries!

I think the inference you leave is a sound one.

In an age when technology is getting better, why assume that any male has the same life expectancy as any other male (same applies for female vs another female). How far away from life expectancy tables taking into account more sophisticated criteria such as
- residential postcode (eg. kms away from a hospital, which themselves would be ranked according to their quality),
- socio-economic status (as an indicator of capacity to seek preventive health measures)
- pre-existing medical / lifestyle conditions, etc?

What you put may well be the case and may initially provide a supporting argument. The fact is though that what the article postulates would be that even after taking all of what you suggest into consideration, that at the final decision making point between two exactly the same backgrounds and ages, excepting one being male and the other female, that a female with a longer life expectancy should receive additional benefits for the same financial input. A clear gender bias.