Discrimination laws may soon stop insurers and annuity providers pricing products on age and gender – but living in a good neighbourhood is likely to cost you money in retirement.
It’s no secret that financial firms base their figures on postcodes.
Home and car insurers have done so for years – but increasingly where you live is having an impact on how much an annuity pays out when you retire.
The irony is the more expensive your home, the less an annuity is likely to pay out because statistically you will live longer.
Research from the Office of National Statistics reveals the best and worse areas for life expectancy.
For women, Kensington and Chelsea tops the list at 89 years, while Glasgow props the table up at 77 years. Men’s life expectancy averages around five year’s less – with 84 at best and 71 at worst.
The problem for many is life expectancy calculations vary between financial providers.
To test the theory, Retirement Solutions compared single life pension annuities with no guarantee for a 65 year old non-smoking man with a pension fund of £150,000 – one for a plush Kensington and Chelsea postcode and the other for a central Glasgow postcode.
The same five companies all returned a quote. Aviva, Prudential and Standard Life were the same or with difference of around £3 for each postcode.
Prudential quoted the lowest rate for Glasgow – £693 a month – while Legal and General was highest at £848. This is a huge difference of £37,200 over 20 years.
Canada Life quoted highest for Kensington (£833 a month) with Prudential least (£696). The difference was £32,880 over 20 years.
Canada Life quoted £812 per month for Glasgow and £833 a monthly return for Kensington – a £21 a month difference that adds up to £5,040 over 20 years.
Legal and General offered £848 a year for Glasgow and £815 for Kensington – a £33 a month difference totalling £7,920 over 20 years.
Legal and General says postcode modelling is not a perfect solution to pricing annuities, but claims statistics prove people in some postcode areas live longer than others.
Aviva reckons annuity customers have a 3-1 chance of receiving a better rate, with 33% picking up less, 33% the same and the rest doing better.
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