The question of where you want to retire may not exercise your brain until you reach retirement age, but it could have a profound impact on your retirement income. For if you were to retire to the West of Glasgow from the leafy suburbs of the South, you will find that your income may be significantly higher. This is because pension annuity companies are using postcode data to help determine life expectancy, and, the earlier you are likely to die, the higher your income is likely to be.
Poorer ares of the UK, such as parts of Scotland, the North and Wales have much lower life expectancies when compared to parts of the South and South West.
Canada Life and Aegon, now join many other leading insurers who now use postcode data when calculating annuity rates. The average life expectancy for a male in Glasgow compared to Chelsea has a whopping 14 year difference. Whilst this benefits those in less well off areas, it is the wealthier who will be paying for this in the form of lower rates. Postcodes are not the only thing insurers look at, health and lifestyle are also key factors. Some have argued that the difference that you will be offered in terms of rate can vary upto 7%, although some providers have argued it is more like 4.5%.
Prudential offered an illustration to show how the rate varied by postcode. A male aged 65 living in Kensington SW3 who has a pot of £50.000 would get an annuity income of £3,128. An equivalent income for someone in the same circumstances from Blairdardie, Glasgow would receive £3,361 – a seven percent difference. For a sixty year old woman from Bouremouth, the income would be £2,685 annually, compared to £2,838 a year if she was from Bolton.
Some argue this is a form of discrimination on the part of the annuity companies, but in reality, insurers use postcode for other forms of insurance such as car and house. Anything that ensures a more accurate life expectancy is a fairer system, it can be argued. What is interesting is whether this will open up a potential Pandora’s box for cheating the system, such as pensioners saying they live where they don’t or moving into a house with someone in a less wealthy area. It is thought that the hassle of doing so would not be worth the small uplift in income, unless there was a substantial gain to be made.
