A desirable postcode could make your retirement poorer
By Nigel Callaghan | 27 Jun, 2008
The once sleepy world of annuities is undergoing a revolution. Most insurers calculate annuities on the basis of the life expectancy, as well as an investor's age, sex and pension fund size.
As a result, annuitants living longer (typically those from more affluent areas) are effectively subsidised by those who have a shorter life expectancy. This could include those from less affluent areas. In September, Norwich Union is to follow the lead set by Legal & General in offering postcode annuities. This will mean that those living in less well off areas will be offered more than those in desirable neighbourhoods. Those living in the ‘wealthiest’ postcodes could be up to 2% worse off as a result.
Norwich Union customers will be divided into nine categories based on their address. The lowest income postcodes across the UK will be in one group. Those living in wealthier areas will be placed in similar groups, the highest of which will receive the smallest annuity.
Now that Norwich Union and Legal & General have opted for this route, it is likely that other insurers will follow and postcode annuities may rapidly become a standardised factor for annuities.
This could be a simplified way of getting a bigger annuity. An investor only has to provide their postcode and the insurer will automatically offer the appropriate rate as this is the only underwriting criteria that they appear to be applying. However, many other factors come into play, including medical information as such, investors could still get a far bigger annuity by providing full personal details. The need to shop around and deal with annuity experts remains of paramount importance.
Investors living in the more affluent areas approaching retirement who have decided to buy an annuity may opt to buy their annuity before this practice becomes widespread. Remember, annuity rates are at a five-year high and have increased by 6% this year alone.
