Under a new scheme being introduced by some insurers, pensioners living in wealthier areas will receive smaller pensions compared to those living on less affluent streets because statistically they are expected to live longer.
From today, Norwich Union is joining Prudential and Legal & General as the third pension
provider to introduce a system whereby a person's postcode determines the size of their pension annuity.
Norwich Union, part of the Aviva group, believes that the "new and improved", "more sophisticated" system will "help produce fairer annuity rates" for its customers.
The new scheme will use the customer's full postcode, so two pensioners living in different parts of the same city will receive the relative amount for their address. About 70 per cent of its customers will see an annuity rate that is either better or the same as before, Norwich Union
has said, but that leaves around 30 per cent with less than their counterparts living in poorer areas.
The potential difference between a pensioner living in a poorer postcode compared to a leafier area could be as much as £228 a year, with the annual income for a 65-year old with a £100,000 pension pot at £7,590 in an area with longer life expectancies, and £7,818 for one with a less wealthy postcode.
In the future, the scheme will also take into account other personal circumstances and lifestyle factors when determining a pensioner's annuity, such as smoking and marital status.
Clive Bolton, director of annuity business at Norwich Union, said that "By using the experiences and systems from around the Aviva group, we are able to use sophisticated postcode pricing strategy to ensure a fairer deal for all of our customers"
"We want to ensure that customers get a fair deal and in these uncertain times to provide them with an opportunity to make every pound count."
However, critics of the scheme are concerned that it will encourage people to invest more in private pension schemes which are not protected by the same regulations, and therefore potentially putting their retirement savings at risk.
There is also concern that using life expectancies to determine annuity levels could provide incentive for smokers, drinkers and the overweight to lead unhealthy lifestyles, because they also receive higher annuities due to their shortened life expectancies.
© Fair Investment