Punter Southall welcomes the move by Legal & General and Hargreaves Lansdown to use postcodes to determine annuity payouts.
The providers partnered on Wednesday to pilot a scheme using postcodes as a risk factor to determine the annuity income it pays to customers.
Joanne Livingstone, principal at Punter Southall, says: “The report that postcode might determine annuity payout is no surprise given the evidence that socio-economic factors have a very strong bearing on life expectancies. For example, those born in Swiss Cottage can expect to live almost 10 years longer on average than those in Kilburn."
Providers traditionally use age and sex to assess life expectancy for conventional non-profit pension annuities but research from the Office of National Statistics suggests a customer’s residence could influence how long they live.
Tom McPhail, head of pensions research at Hargreaves Lansdown, says: “Postcodes are already accepted for risk profiling in other areas of insurance, such as motor and household. Using just age and sex is a blunt instrument for annuity pricing and it’s a well established fact that where you live can determine how long you may live.”
The providers say a single 60 year-old man with a £30,000 pension fund could receive 1.2% more from his annuity in the postcode scheme. A woman of the same age with the same pension pot could see a 1.1% increase.
Livingstone says Punter Southall will soon launch a life expectancy modeller on its website for customers concerned about the potential impact of their postcode.
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