The cost of living in the wrong location
From insurance to council tax, where you live can have a big impact on your wallet, says Kate Hughes
Saturday 23 August 2008
From the value of our homes to the price of a pint at the local pub, we all know that where we live affects our living costs. But your postcode can also affect your pocket in less obvious ways. Companies are increasingly using precisely where you live in the country to pigeonhole you and your lifestyle, using the information to determine how much you will pay for everything from your car insurance to your pension.
This, they claim, makes the assessment of risk more accurate, and premiums cheaper for everyone, but if you don't fit the profile or you fall on the boundary you could end up paying thousands of pounds more for the same products and services.
The theory goes that the more affluent you and your neighbourhood are, the longer you live. Glaswegians, for example, have an average life expectancy in their early sixties, while people living in Surrey will on average live well into their eighties. But the longer you live, the more expensive your pension is for the insurance company paying your income in retirement, as it will be paying out for longer. And in recent years, some insurance companies have started taking account of customers' postcodes when deciding what annuity rate to pay them.
Prudential recently became the latest to begin using postcodes as part of the assessment for pension incomes, with others expected to follow suit. The decision to use location, as well as gender, age and fund size, could affect your annual pension payments by up to 5 per cent. Prudential argues that the assessment is based on your full postcode, which refers to an average of 14 houses on a street or within a few square miles, but the data about the health and wellbeing of those residents is based only on its existing client base, not the population as a whole.
"Using your postcode to help determine how much you get in retirement seems to be a creeping policy," says Tony Attubato, technical manager at independent non-profit organisation, The Pensions Advisory Service. "This is understandable when you consider that Glaswegians typically live to their late sixties whereas those on the south coast often live into their early 80s. But surely a customer's individual lifestyle and medical situation should determine that risk without taking into account the irrelevant health of those living around them?
"The difference between annuity rates is significant and those approaching retirement really must shop around for the best rate for their pension pot."
It makes sense that if your house gets flooded every year, your home insurance will be pricey. The same goes for the risk of subsidence, or areas with high crime rates. But experts warn that insurers are pushing up the premiums for 'at risk' areas and if your property or car is in that area, your insurance premiums will be high, regardless of whether your own individual circumstances fit that assessment or not.
Be warned if your postcode is SE27 – West Norwood in London. Here you will pay an average of £342 a year for your home insurance, the highest in the country, and over £230 more a year than you would pay if your letters are addressed to AB39, Stonehaven in Kincardineshire - the cheapest in the country, according to price comparison site moneysupermarket.com.
But simply living on or over the border of two areas could mean a significant difference to your insurance costs. If you live just down the road from West Norwood, in Upper Norwood, or SE19, it could mean an average saving of over £50 a year in premiums for example.
And you may be a very careful driver, but if the motorists around you are not, your premiums are still likely to be higher than average. Those living in East London, with a postcode starting with the letter E, for example, will pay an average of £315 for their car insurance a year, almost £200 more than those in Dundee with a DD postcode, whose motor cover will typically only set them back £116 a year.
"There are no hard and fast rules about assessing location risk," warns Richard Mason, of Moneysupermarket.com. "An affluent area which is relatively free from crime, but is in a built-up city may still suffer from high premiums. Insurers should assess premiums on a case by case basis, rather than blacklisting cities or areas as 'high-risk'.
"Different insurers weight these factors differently, so anyone who finds their insurance premiums too high should look for insurers who will assess their premiums on an individual basis. Consumers would do well to shop around every year instead of renewing with the same insurer as this will probably save them a great deal of money."
Most of us have heard the stories of being able to get life saving cancer drugs in one part of the country but not in another other, the so-called healthcare "postcode lottery". But what about your personal insurance premiums? As things stand, your lifestyle, your medical history and that of your family are taken into account when a protection provider decides how risky you are and how much your premium will be. But the more affluent you are, the healthier you are expected to be. So in theory, the more upmarket the area, the cheaper your premiums should be.
A number of private medical insurance or PMI policies already take this into account, and will require your postcode early in the application process. But Michael Whyte, chief underwriter for Norwich Union, believes it may only be a matter of time before your postcode affects all your protection premiums. "Most of the factors affecting your health are already taken into account elsewhere in the application process, and the use of postcode data to help determine your health risks is still new" he says. "But the information will become more accurate as time goes by and could lead to more competitive premiums, and will probably be taken into account whenever you apply for personal insurance in the future."
Even if you're relying on the NHS for your healthcare, your postcode is incredibly important. If you live in an area with an affluent primary care trust, your doctor is more likely to be given the green light to prescribe more expensive drugs. Furthermore, hospital facilities are likely to be better.
Likewise, if you end up needing to move into long-term care, the financial situation of your local authority will be crucial. Many cash-strapped local authorities provide very poor quality care homes.
Council tax: who pays what
How much you pay the local council for your services depends on the size of your property and, crucially, which local council ward or area you live in. That can mean a difference of almost £1,000 a year if you are unlucky enough to live on the wrong side of a border, often a matter of just a few yards.
In the 2008/9 tax year, Sedgefield Borough Council, Tony Blair's old constituency in County Durham, charged its band D residents £1,613.10 for a year's local services, Rutland County Council demanded £1,606.38 and South Bedfordshire District Council billed the locals £1,593.51 per household, compared with the average council tax bill per dwelling of £1,086. The cheapest band D bill is Wandsworth in south London (£687), but if your end of the street is officially over the border in Richmond, your bill rockets to £1,543.76.
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