Women will benefit from an increase in the amount they can withdraw from their pension in retirement each year when an European Union (EU) gender neutral law comes into force in December.
HM Revenue & Customs recently confirmed that the EU ruling, which makes it illegal for insurers to use gender as one of the risk factors when determining pricing, will apply to capped withdrawals in income drawdown, in addition to annuities.
Currently maximum income rates are calculated using two tables, one for males and one for females, which looks at life expectancy, size of pension and also the gilt yield. But on 21 December the female table will be withdrawn and all capped rates will be based on the male life expectancy rates.
As men tend to have a lower life expectancy than women, the amount of income men can withdraw from their pension has tended to be higher than for women. According to Skandia the change will mean women could receive around 8% more money from their pension each year.
Under the current rules and based on a £100,000 pension and a 2% gilt yield, a 65-year-old woman would be allowed to take around £4,900 a year from her pension. But based on the male life expectancy rates, this figure would rise to £5,300.
It is still unknown how annuities will change under the EU rules. Women's annuities could become more generous if they match or meet halfway with men's annuities, or insurers may choose to lower male rates so they match female rates.
Adrian Walker, Skandia's pension expert, says women already taking a capped income will be able to benefit from the rule change at their next review period.
"Females approaching retirement today, and considering capped income, should ensure they choose a provider with flexible review periods, or hold back some pension money to top up their drawdown fund after 21 December, so the entire income amount is recalculated to benefit from the rule change," he comments.
This article was written for our sister website Money Observer