The pension annuity market is changing; annuity payouts will be determined by your lifestyle, but should they?
If you’re a single smoker living in the wrong sort of place, and take an annuity from Norwich Union, you could get a higher pension payout than a non-smoking married person who lives in a wealthier neighbourhood. This is simply because Norwich Union expect you to live less time in retirement.
Under a new system of “lifestyle rates” being introduced by Norwich Union, factors such as whether you smoke, married or not, and where you live, will be taken into account when deciding your total pension annuity payout.
This leading annuity provider has decided that because if you smoke, you are likely to die sooner, it can afford to give you a slightly higher annual annuity payment for the same investment. Non-smokers, by contrast, will get slightly less.
The average private pension pot built up by the time someone retires is about £35,000. A single smoker living in a neighbourhood judged by Norwich Union to be comparatively poor could end up being several hundred pounds a year better off than a married non-smoker with an equivalent pension pot who lives in a wealthier area.
The smoking and marriage calculation will be introduced in November, and is likely to further increase the differential.
These new lifestyle rates help people understand that it is not the more affluent areas that do best when it comes to annuity rates. Shopping around for a better annuity rate can result in an individual being better off.
