Because poorer people statistically have shorter lives than those who live in affluent areas, Legal & General have announced plans to reflect people’s postcodes in the amount of pension they receive.
It is hoped that this radical move will balance out discrepancies between the total amounts that the rich and poor are paid throughout the course of their retirement because better off pensioners live longer.
The South East is said to produce the longest lives, with men residing in areas such as Guildford, Kensington and Chelsea living an average of 82 years, compared to just 70 years in deprived Northern areas such as parts of Glasgow, Manchester and Liverpool.
Those living in the latter category will receive up to three per cent higher annuities – a form on investment which pay a regular income in retirement – but Legal & General have been quick to reassure wealthier pensioners that this will not mean that they will have to foot the bill and their pensions will remain the same.
Tom McPhail, Head of Pensions Research at Hargreaves Lansdown which carried out a successful three month trial of postcode pensions, said that “This is a bold step that will shake up the annuity market. Legal & General’s decision to use the postcode rating more widely is great news for the market and those annuity customers who will benefit from this new approach.
“The current system of underwriting the majority of annuities that are purchased is just on the basis of age and gender. This is out of date and grossly unfair to the poorest groups in society.” he said.
However, experts have warned that it’s not all sunshine and roses, as, if the move proves successful, there is fear that the better off pensioner will end up boosting the income of the poor by taking cuts to their annuities. It also presents affluent pensioners with an opportunity to buy property in poor postcode areas in order to cash in on the extra allowance.
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