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'Posh' could lose out on postcode pensions
PEOPLE'S retirement income will vary according to where they live – with "posher" people potentially losing out – under a new system launched by Norwich Union.
The group, which is part of insurance giant Aviva, is using the full postcode of people buying an annuity to determine what their life expectancy will be.
It claimed that 70 per cent of customers converting their pension pot into an annuity, which provides them with an income for the rest of their life, would be the same or better off following the move.
However the 30 per cent of people who are likely to be worst off will be those living in affluent areas, as they are expected to live for longer.
The group also plans to include people's marital status and whether or not they smoke in its pricing model from the end of November.
These factors are currently not included in pricing for standard annuities, although smoking is taken into account for impaired life ones.
Clive Bolton, Norwich Union director of annuity business, said: "Many customers will benefit from these changes as we tailor quotes to better reflect their individual circumstances and lifestyle."
Postcodes
He added that, until recently, more pricing factors were used in calculating the cost of pet insurance than were used in calculating annuity rates.
The group said that by focusing on full postcodes, people living in the same city but in different areas would receive differing rates to reflect their individual circumstances.
It said that it was widely recognised that people's lifestyle would determine where they lived, and where they lived determined how long they would live for.
But it stressed that the use of postcodes was not creating a North/South divide on annuity pricing, adding that every city had areas where affluent people lived and areas where less affluent people lived.
The group has created nine bands into which postcodes will be placed, with these bands linked to the number of different financial products people in the area have.
Norwich Union said there was a very close correlation between how sophisticated people were in their use of financial products, and how long they lived for.
A 65-year-old man could previously buy an annual income of 7,668 when converting a 100,000 pension pot into an annuity.
But under the new system, somebody living in a postcode that was deemed to have the lowest level of financial usage would be able to get an annual income of 7,818, while someone in an area with the highest level will get 7,590 a year.
Norwich Union is not the first group to introduce so-called postcode pricing for annuity rates, with Legal & General and Prudential both introducing it during the past year.
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Wednesday 23 May 2012
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