More commentary about how the ‘better off’ could lose out with their pension annuity payments in retirement because of the lottery of postcode annuities. Retirement income payments will vary according to where people live under a new system launched by leading annuity provider, Norwich Union.

The company, part of Aviva, is using the full postcode of people buying an annuity to determine what their life expectancy will be. It claims that 70 per cent of customers converting their pension pot into an annuity, which provides them with an income for the rest of their life, would be the same or better off following the move. Naturally, therefore, 30 per cent will be worse off, and these will live in affluent areas, as they are expected to live for longer.

A range of rating factors, soon to be brought in by Norwich Union, including the likes of marital status, are currently not included in pricing for standard annuities, although smoking is taken into account for impaired life annuities.

Clive Bolton, Norwich Union director of annuity business, said: “Many customers will benefit from these changes as we tailor quotes to better reflect their individual circumstances and lifestyle.”

It has been said that, until recently, more pricing factors were used in calculating the cost of pet insurance than were used in calculating pension annuity rates.

By focusing on full postcodes, people living in the same city but in different areas would receive differing rates to reflect their individual circumstances.

The group has created nine bands into which postcodes will be placed, with these bands linked to the number of different financial products people in the area have.

Legal & General and Prudential both introduced postcode annuities last year.

To try and prevent further mis-selling in the financial services industry, the Financial Services Authority (FSA) has set guidelines on protected rights transfer advice. From the 1st October individuals will be able to move such pensions monies into Sipps (self invested personal pensions), to take investment decisions themselves to help boost their potential pension fund for that all important pension annuity purchase at retirement. It wants to ensure advice on transferring protected rights into Sipps is in line with guidance on non-Sipp personal pensions, including providing a key facts illustration with a comparison of projected retirement incomes.

From the 1st October (tomorrow), people will be able to contract out of the State Second Pension (S2P) into a Sipp and transfer existing National Insurance rebates (protected rights), from a personal pension into a Sipp.

Firms advising on contracting out into a Sipp have to provide a comparison of projected income from the Sipp versus potential benefits from S2P. The requirement already exists in relation to non-Sipp personal pensions.

In addition the added investment flexibility needs to be judged against the client’s needs and risk appetite. A clear explanation of the costs involved is also necessary.

Advisers always need to ensure they make suitable recommendations based on what is best for their customers – including, from 1 October, when these transfers are made into a Sipp.

There are a variety of solutions out there in the market when it comes to your pension fund and how it’s invested; and your retirement income and whether or not a conventional annuity is the answer. One size doesn’t fit all when it comes to pensions. That’s why one leading pension and annuity provider, Aegon Scottish Equitable, has a full range of contracts offering true choice.

Whether you’re looking for flexible pension savings or innovative retirement income solutions, they can help you make the most of your money. Take a look at the following:

Flexible Pension Plan (FPP)
Offers more flexibility and choice. Its sophistication comes from the mix of traditional security and benefits with a self-invested option.

Retirement Control Phased Retirement Plan
For clients looking for maximum choice and flexibility in their retirement, with self-investment a key ingredient. 
 
Retirement Control Unsecured Pension Plan
A wide range of fund choices and self-investment options sets it apart from the rest. 
 
Income for Life
An unsecured pension, this offers you a combination of drawdown with a guaranteed income for the rest of your life. 
 
Annuities
The traditional choice that still offers good value for money. 
 
Alternatively Secured Pension
A sound alternative to the traditional annuity if you don’t wish to lose control of your money.

They are not unique, but Aegon Scottish Equitable certainly offer a terrific range of retirement solutions.

In these troubled financial times, there is a great deal of uncertainty. This is most definitely the case in repect of pensions and annuities, especially with the value of pension funds being lower for current retirees. People are considering delaying their annuity purchase, which is understandable. However, are they really sure about what to do…probably not.

My message here is if you have concerns about what to do, take advice from a specialist. You do have options, and they might need explaining to you. You don’t have to buy a pension annuity with all of your fund. Some could remain invested to catch up with value over the coming months and years. You don’t have to cash in your pension fund when it is at a low point.

So, get someone on your side, someone to work with you on this very important financial decision. 

Partnership, a specialist annuity provider, with an emphasis on enhanced annuities and impaired life annuities has recently launched a smokers rate for purchased life annuities. Currently it pays an average of 6.5 per cent a year for 60 – 65 year olds who have smoked a minimum of 10 cigarettes a day for at least 10 years. The rate for older ages could be significantly more.

This new product has been launched to meet a demand from advisers and clients.

Unlike the current smokers’ annuity product, which can only be bought with the proceeds of an authorised pension scheme, the purchased life annuity is available to anyone with a lump sum to invest for income.

Products like this that guarantee income are more appropriate than ever in a world of volatile investment markets. Once purchased the amount payable is guaranteed. Not a bad thing considering the fact that interest rates will probably start falling meaning that returns elsewhere may not be so good.

This could be worth considering if you want a decent income from your lump sum and you are a regular smoker.