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HMRC have updated their guidance on drawdown pensions to instruct providers to use the same rates for women as for men to determine the maximum pension from 21 December 2012.
The Government Actuary’s Department’s (GAD) rates for men are bigger than those for women, meaning the effect of the change will be that women will be able to take a higher drawdown pension income than before. There will be no change for male pension holders.
The move is necessary in light of the decision of the European Court of Justice (ECJ) in March 2011: insurers using gender as a risk factor in ways that resulted in individual differences in premiums and benefits should not be permitted for certain insurance transactions, because it is contrary to EC Directive 2004/113/EC that implements equal treatment between men and women.
The ruling covers annuity rates for men and women where the annuity purchase is covered by the gender directive. The calculation of the maximum drawdown pension is based on the annuity that could have been bought with the drawdown pension fund.
Rules implementing the ECJ judgment have to be in place by December, but it is not yet certain how annuity providers will handle the overhaul.
Until it becomes clearer how they will apply the judgment in practice, the maximum drawdown pension for both men and women aged 23 and over should be calculated using the higher male rates in GAD's table 1.
