Pensions are pretty important things and making sure you get a good source of income in retirement is crucial.
But did you know that some pensions are being rated on how long people live in your area?
Following a pilot scheme, leading insurer Legal & General says it will now pay higher pensions to those who live in areas where life expectancy is short; but it denies that it will cut pensions paid in areas where you can expect a longer life.
Now, following a pilot scheme earlier this year, Legal & General's Managing Director for Annuities, Simon Gadd, said that they would now apply nationally:
"If a customer provides us with their postcode we will look at that against our database. If we think that postcode corresponds with an area where people are relatively poor, we can proxy that against a lower life expectancy and we can give those customers a slightly better pension."
So how does the scheme work?L&G will adjust its annuity payments according to where you live says L&G'S Tim Goden:
"Traditionally, annuity payments have been based on just two factors - age and sex. The older you are when you start, the more you get, while men, who live shorter lives on average than women, receive more. With postcodes, we are adding another rating factor. People in some areas have shorter lives and therefore should get paid more."
The difference, which would only be 2% to 3% a year more, reflects the fact that people in some areas will, on average, have a shorter life expectancy and so will draw their pension for a shorter time. Legal & General says the extra cost will be paid for by profits from the new business, not by cutting the pensions paid to people in wealthier areas.
The "shorter lives" postcode uplift is not huge - but it is extra money which could persuade annuity buyers (and financial advisers) to go with L&G, which has a 9% share of the retirement income market.
Postcodes will be checked against voting and credit records and it will go down to the last letters; so it will be more selective than merely dividing whole areas into good and bad. A mixed housing street could have more than one rate.
Billy Borrows of William Burrows Associates, whose business is finding the best pension annuity for clients with a pension fund, says the new system is fairer:
"If insurers pay the same pension to everyone, then poor people, who live a shorter time, subsidise the longer lives of the rich. I see no reason why people at the lower end of the scale should be subsidising those at the upper end."
He already advises anyone about to get an annuity to see a doctor, in case they have an illness they are unaware of, which will boost the pension they get:
"People who are in good health will get a lower annuity, but they have more choice anyway. One choice will be to wait and buy an annuity later when they are in poorer health."
Already some insurers pay higher pensions to smokers and those with life-reducing illnesses, and over time it seems likely that more factors will be introduced such as obesity, what kind of job you do, and salary etc.
Critics of the move, such as pensions policy adviser Ros Altmann, believe it can be unfair to select by postcode:
"It could mean pensioners living in better areas receive lower annual payments from the same pension pot than those in poorer parts".
But L&G argues that everyone now accepts postcodes in motor and home and contents cover and so pension calculations should not be exempt from such criteria.
So is "pension by postcode" a fair or unfair way to treat your retirement income?
Why not let us know in the comments?
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