Assignment
Life changes everything People with private pensions often receive a sum of cash upon retirement. This cash can be re-invested with the original insurance company to obtain a continued source of income for life, known as an annuity income. During the 1970s and 1980s - a time of double-digit interest rates - life insurance salesmen offered guaranteed fixed rate annuities of a meager 6% or 7% as a marketing gimmick. The industry was confident that these guarantees were hardly worth the paper they were written on and thus unlikely to be taken up. But times have changed; interest rates have plummeted and life-expectancy rates have soared - which makes these guarantees very valuable indeed. Values vary, but a 65-year-old man could expect a 30% improvement in his annuity income if he has a guarantee. Annuity rates in general have halved during the past decade.
UK life insurance companies are so concerned that they have set aside reserves of £12bn to offset the costs of around 1 million pensioners taking up their guarantees within the next few years. Meanwhile, the European Commission is concerned about the lack of pension provision for women. Proposed plans will end gender discrimination in the insurance premiums that men and women pay in the hope that more women will make plans for their futures. However, this is also a concern for insurance companies who use statistical differences between the sexes (such as life expectancy and driving records) to charge women higher premiums for pensions and annuities whilst charging men more for life insurance. Women also receive lower annuities than men, based on the fact that the same lump sum of cash has to last longer and thus must be spread more thinly over more years. The European Commission argues that when factors which are not linked to sex, such as lifestyle, are removed from the calculations, the differences in life expectancy are reduced. However, insurers maintain that they already set fair prices based on genuine risk and that the Commission's plans would have a perverse effect by increasing the cost of women's life insurance by 10-16%.
Question
1 Why have guaranteed fixed-rate annuities become such a worry for insurance companies?
2 Why do women receive lower annuities than men?
3 Do you think the European Commission has a good argument for removing discrimination from the insurance market?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.