Julian Knight: Postcode pensions and the perils of living in posh places

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.

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: Experienced Recruitment Consultant

    £20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

    Recruitment Genius: Collections Agent

    £14000 - £16000 per annum: Recruitment Genius: This company was established in...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

    Day In a Page

    Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

    Cameron lowered the flag for the dead king of Saudi Arabia...

    But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Humanity must be at the heart of politics, says Jeremy Corbyn
    Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

    Joe Biden's 'tease tour'

    Could the US Vice-President be testing the water for a presidential run?
    Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

    Britain's 24-hour culture

    With the 'leisured society' a distant dream we're working longer and less regular hours than ever
    Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

    The addictive nature of Diplomacy

    Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
    Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

    Fashion: Ooh, Lady Chatterley!

    Take inspiration from DH Lawrence's racy tome with equally racy underwear
    8 best children's clocks

    Tick-tock: 8 best children's clocks

    Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
    Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

    Charlie Austin: ‘If the move is not right, I’m not going’

    After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
    Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

    How Isis profits from destruction of antiquities

    Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
    Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

    'If we lose touch we’ll end up with two decades of the Tories'

    In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
    Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

    The Arab Spring reversed

    Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
    King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

    Academic claims King Arthur was real - and reveals where he lived

    Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
    Who is Oliver Bonas and how has he captured middle-class hearts?

    Who is Oliver Bonas?

    It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
    Earth has 'lost more than half its trees' since humans first started cutting them down

    Axe-wielding Man fells half the world’s trees – leaving us just 422 each

    However, the number of trees may be eight times higher than previously thought
    60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

    60 years of Scalextric

    Model cars are now stuffed with as much tech as real ones