Pensioners living in the South or South-east could be subjected to a postcode "lottery" for the best...
Pensioners living in the South or South-east could be subjected to a postcode "lottery" for the best annuity rate, as Norwich Union is now considering setting annuity rates according to local mortality rates and previous employment.
Although research is still at an early stage, NU is looking at whether "lifestyle" annuities could replace the existing system of basing annuity prices on your age, gender and health. At present, two men of the same age and health are likely to receive roughly the same rate of annuity, however, Norwich Union is challenging the idea that teachers, for example, could get a similar rate to a builder under current annuity calculations.
Changes are also being considered, says Mary Pitt, NU's annuity market manager, to try and improve the living standards of those people who may not live as long as their neighbour, but have not enjoyed as comfortable a lifestyle.
"We are looking at lifestyle annuities, based on where people live, whether it influences life expectancy, and their occupation, as a combination of all these elements. It's not just about whether you live in N2, for example, as to whether you get a better rate, but what sort of lifestyle you have had and where people lived during their working life," says Pitt.
Anyone living in certain parts of the North, for example, who did a manual job might find they get an annuity rate which is around 10% better than someone living in the South east who did an office job, because research tends to suggest the Northern-based manual labourer will die earlier.
Ian Smith, director of Thomas & Young Financial Services in Solihull, points out that the concept is not an entirely new idea, and MGM Assurance and GE Life already offer annuities with similar calculation methods, in selected circumstances.
That said, where such calculations are used, it has been to the advantage of the client, says Smith.
"We had a situation where we managed to get the director of an engineering company around 5-6% more than the average annuity, because he did a lot of the hard labour, but we had to point out his status."
But Smith has reservations as to whether annuity rates could be based on the client's postcode.
"Given the way in which people are now quite mobile, how do you determine where a person lived? I can see the argument if someone has done the same job in a factory for 20 years, but looking just at location seems too fluid a criterion," adds Smith.
If Norwich Union did decide to implement such a system, anyone living in Manchester who later decides to retire on the South Coast is likely to receive a slightly better annuity rate because calculations would be based on where an individual has lived for the bulk of their life.
Actuaries are currently researching and testing calculations before final decisions, but any change to setting of annuity rates is likely to be some way off, adds Pitt.
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