More from Norwich Union and pension annuity rates

A rating scheme from Norwich Union for annuities will mean that some middle class retirees will be worse off. They have introduced postcode annuities, which effectively pay more if you live in a poorer area, or less if you live in a better area, like many of our middle classes. This is because those living in less affluent areas are likely to live less time in retirement, whereas those in posher areas are expected to live longer. If you are expected to live longer Norwich Union, a leading annuity provider, argues that they will be paying out more over your lifetime, so they have decided to pay less per year, but for longer. Get it?

Critics argue the Norwich Union scheme discriminates against the middle class as an affluent postcode does not rule out death from disease or accident. Fair point.

The company said it will use customers’ full postcodes to decide their pension annuity rate. It insisted that 75 per cent of customers who converted their pension pot to an annuity to receive an income for the rest of their life would be the same or better off under the new system.

The firm, part of the Aviva group, said it also planned to factor in people’s marital status and lifestyle factors such as smoking. Therefore, many customers will benefit from these changes as quotes are tailored to better reflect their individual circumstances and lifestyle.

Norwich Union has created nine different postcode bands which would be used to calculate a resident’s annual retirement income. Under Norwich Union’s previous calculation system, a 65-year-old man with a £100,000 pension pot would receive an annual income of £7,668 if he converted it into an annuity. Under the new scheme his annual income would vary from £7,590 if he lived in a top-ranking postcode to £7,818 in the lowest band.

There will always be exceptions to the expected outcome with these postcode annuities; no-one can foresee what’s going to happen in any individual’s life. But there has been a significant amount of research that suggests that where you live and your financial sophistication are very strong indicators of your life expectancy.

Annuity providers have also begun offering ‘enhanced annuities’ to smokers, drinkers and the overweight because they are likely to die younger.

Annuity pay-outs could be up to two per cent higher for those with lifestyles considered likely to shorten their lives, and up to 60 per cent higher for customers thought certain to die early. 

The points to note here are that you can shop around for a better annuity rate, and you should use a specialist, who understands what is available.