A pension annuity could be less if you live in the wrong place
That’s right, live in the wrong place with the wrong postcode, and your pension annuity could be less. Your postcode can affect your pocket in some 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 house insurance to your pension annuity.
They claim this 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 losing out, and quite heavily. This can be seen quite clearly with car insurance and proximity to city centres.
The theory is that the more affluent you and your neighbourhood are, the longer you live. Glaswegians have an average life expectancy in their late sixties, while people living in Surrey will on average live well into their eighties. The rub is, whilst that is good for the individual living longer with the pension annuity, the more expensive your pension annuity 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, a major player in the pension annuity market, 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, from 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.”
Therein lies the message. Yes, your postcode can now have an effect on the pension annuity rate you are offered, but there are other important factors which could entitle you to a higher annuity rate; you might smoke, or you might have a condition entitling you to an enhanced annuity or an impaired life annuity. So, shop around.