Postcode Impact on Annuities?
It now appears that the “richer” cities, such as those in the Home Counties could get their pensions reduced to those in the “poorer” cities, such as Glasgow.
This is because of the effect of living in different areas has on life expectancy. The current life expectancy between these areas differs by about 4 years, so the insurance companies have to take this into consideration when assessing the amount of income that will result from a pension pot. They argue people in rich neighbourhoods are healthier, will live longer and are likely to claim an income for longer, so deserve smaller monthly payments.
Experts say thousands of savers who diligently put aside money for old age will be penalised unfairly as a result. Many use their cash savings to retire in clean, safe towns after a life working hard to make ends meet.
Annuity rates have already been hit hard by the current financial crisis and this is just another blow to have to take.
Government statistics in this area have just been released and they are backing up the life expectancy claims and hence making this more likely.
The only way middle-income pensioners can beat the postcode lottery — which is kept behind closed doors by insurers — is to shop around.
Some firms offer annuity rate boosts to those with an illness or who smoke. These can be worth up to 50% and bypass the need to use addresses to estimate life expectancy.
A staggering three in five people qualify for so-called enhanced annuities, yet industry figures show just one in five applies.