Julian Knight: Postcode pensions and the perils of living in posh places
Sunday 11 November 2007
Where you live is a good indicator of life expectancy. Set up home in leafy Surrey or posh Kensington & Chelsea and you're odds-on to notch up 80-plus years. Live in Glasgow or Manchester, however, and you'll be lucky to reach 70.
Such stark differences have been around for donkey's years but only now is an insurer taking location into account when deciding on annuity levels. Legal & General said last week that it will look at annuitants' postcodes as part of assessing the level of income they will pay them in retirement in return for their pension pot.
The upshot of this is that people who live in postcodes where life expectancy is high will get a lower annuity income than those living in areas with below-average life expectancy.
For decades, in the main, annuity levels have been based on gender and the age at which the individual chooses to convert their pension pot into an annuity. Women get less than men (because they live longer) and the older the annuitant the higher the income paid (as they have on average fewer years left to live). In the light of such blunt calculations, L&G's move is to be welcomed. Anything that finesses annuity calculations may lead to more fairness. But why stop at postcodes? Occupation is a major determinate (not just indicator) of life expectancy. Accountants live almost 15 years longer than labourers.
Some providers already take medical history into account – annuity income can be up to 20 per cent higher for people who have a heart condition, for example. Tom McPhail, pensions expert with advisers Hargreaves Lansdown, says this trend is only going to grow as insurers actively choose to gear their annuity offering to people who, to put it bluntly, aren't likely to live long.
The insurance company gains because it has more precise models on which to base annuity calculations – and assess likely profit – and the annuitant benefits because he or she gets the maximum income – and if they beat the insurer's life-expectancy calculation, then all the better.
However, this gradual finessing of the market is not going to make a blind bit of difference to the majority of people buying an annuity. This is because two–thirds of those who buy an annuity do so straight from their pension company. By failing to shop around for the best annuity – using what's called the open-market option – they are missing out on income for the rest of their lives.
Even people who would qualify for a bigger annuity – by having a condition likely to shorten their lives – are sitting on their hands. Mr McPhail describes this as "madness" and he's spot-on.
- 1 Is your name now 'banned' in Saudi Arabia?
- 2 Gender-specific books demean all our children. So the Independent on Sunday will no longer review anything marketed to exclude either sex
- 3 Missing Malaysia Airlines Flight MH370: Did jetliner fly into area controlled by Taliban? Net widens after claims final satellite signal could have been sent from the ground
- 4 Nasa-funded study warns of ‘collapse of civilisation’ in coming decades
- 5 'Missing Malaysia Airlines Flight MH370 plane found in Bermuda Triangle!' Viral Facebook links are profiting hackers
Katie Hopkins continues campaign to become Britain's most hated talking head with poorly timed Bob Crow tweet
Ukip and Nigel Farage on course for remarkable victory in European elections
No EU referendum under Labour: Ed Miliband to reveal that vote on membership is ‘unlikely’ in next Parliament if party wins power
Tony Benn was entirely ineffectual - and usually wrong
The rise of Ukip: Study warns Labour that Eurosceptic party's electoral base now 'more working class than any of the main parties'
Europeans have ‘got whiter’ due to natural selection in past 5,000 years, scientists say
iJobs Money & Business
£35000 - £43000 per annum + Bonus and Benefits: Harrington Starr: A global lea...
£50000 - £60000 per annum: Harrington Starr: Linux Systems Administrator - UNI...
£32000 - £36000 per annum + generous benefits: Pro-Recruitment Group: * TAX * ...
£37000 - £40000 per annum + £20000 benefits package: Pro-Recruitment Group: **...
Day In a Page
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar
A newly refurbished one-bedroom flat in the heart of Mayfair, close to Grosvenor Square
A charming four-bedroom house overlooking Burleigh Square Park, close to Thorpe Bay
A three-bedroom farmhouse with a large inglenook fireplace and exposed beams
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station
A Grade II-listed home with six bedrooms, secluded landscaped gardens and views across Hadley Green
A Grade II-listed mansion with two apartments and a cottage, near Gretna Green
A three-bedroom Grade II-listed mews house with vaulted ceilings and roof garden