‘Postcode lottery’ could influence pension payouts

31 August 2007
A new pension proposal developed by Legal and General and Hargreaves Lansdown could mean that those living in more prosperous areas will receive lower pension payments than those living in poorer areas.

The plan suggests that the individual’s postcode should be taken into consideration when pension payments are being processed. The rationale behind this is that those living in less affluent areas are more likely to die at a younger age, while those in higher-band regions are believed to be healthier, with a longer life expectancy.

Legal and General’s annuities chief, Simon Gadd, explained that using postcodes would help in accessing and pricing the longevity risk for each customer.

He added that a person’s life expectancy, particularly related to age and gender, has always been part of the assessment process and that medical history is also taken into consideration. Mr Gadd described this new criterion as a “natural evolution for the pension annuity market”.

Those in the North West, such as Liverpool and Manchester – where life expectancy is lower – are likely to benefit from the proposal, while large areas of the South East, particularly affluent London boroughs such as Kensington and Chelsea, are more likely to be negatively impacted as life expectancy is significantly higher.

The ‘better area’ scheme is likely to affect the 1 million people believed to hold private pension schemes as well as the estimated 5 million who have private sector occupational pensions. Many of these schemes do not guarantee the income amount they will pay out during the scheme holder’s retirement.

According to finance experts, this could lead to the abandonment of traditional pension schemes in favour of private investment.

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