ECJ ruling: The impact on retirees

Ros Altmann says today's ruling is a "devastating" blow to people's hopes of a comfortable retirement.

Annuity rates will worsen for all, just as automatic enrolment starts: The European Court has dealt a further future blow to Britain's already struggling pensioners. In defiance of common sense and logic, insurers will be barred from pricing their products on the basis of risk.

The delay to 2012 is a bit of relief, but not much comfort for those who will be affected. And of course 2012 is the year that the UK will start to automatically enrol all workers into pension schemes.

Insurers barred from pricing products on basis of risk: The Court has decided that insurance companies will no longer be allowed to use their well-established models to assess the risk of those applying for cover when pricing products, whether it be for particular groups of drivers who are more prone to accidents or for groups of pensioners who have longer life expectancy.

Annuities will become more expensive as four-fifths of annuities are bought by men: This means that annuities will become more expensive for the vast majority of buyers.

Currently, men buy around eight out of every ten annuities sold in the UK and all of them risk receiving much lower pensions as a result of this decision. This means that future UK pensioners will be even poorer than they otherwise would be.

If an insurance company does not know whether the person buying the annuity is male or female, it is inevitable that they will increase the risk margin 'just in case' they are selling to a woman, so men will all face potentially worse annuity rates and, therefore, will receive much lower pensions for the rest of their life.

Women's annuity rates are unlikely to improve by much, especially as the majority of annuity purchasers are men. Will men now rush to buy their annuities before the ruling hits?

UK pensioners hit worst as other countries don't have mandatory annuitisation: This will hit future UK pensioners much harder than the rest of Europe, because it is only in this country that Government rules tend to require people to annuitise their pension funds.

Our state pension is already about the lowest in Europe so the impact here is very worrying.

Middle classes potentially hit worst: The worst affected are likely to be those with moderate amounts of pension savings, who do not have enough money to afford more flexible pension options but have saved more than the minimum £18,000 which would allow them to avoid annuitising. [Current rules allow anyone with less than a total of £18,000 in pension savings - the so-called 'trivial commutation limit' to take the money as a lump sum rather than annuitising.]

Another blow to people's hopes of a comfortable retirement, even after auto-enrolment: As we are about to embark on a national system of automatically enrolling every worker into a pension scheme which will usually require annuitisation on retirement, this ruling is a blow to our national income.

Annuity rates are already offering record-low pensions and they will now fall further for most people.

As final salary schemes are nearly all now closed and future pensions will be almost exclusively on a defined contribution basis for private sector workers, this ruling is yet another devastating blow to people's hopes of a comfortable retirement.

Ros Altmann is a UK pensions expert and campaigner