More providers offer post code annuities

Pre-retirees living in affluent areas are being urged to shop around for an annuity if they smoke or have a medical condition as more providers introduce post code ratings for pensions.

Canada Life this week became the latest provider to base its annuity pricing on post code, which sees better rates offered to individuals living in less affluent areas because of assumptions about shorter life expectancy.

Annuities are bought in exchange for a lump sum and will pay a regular income for life with the rate offered dependent on age, the size of the pension pot, health, and increasingly, address.

Canada Life says individuals living in affluent areas can expect to receive as much as 7 per cent less for their retirement income as their post code is considered to have healthier, wealthier individuals.

“We think it is a fairer system because currently someone who lives in Chelsea is expected to have a higher life expectancy, and draw longer on their annuity, than someone who lives in an area where life expectancy is shorter,” says Peter Gould of Canada Life.

Canada Life joins the Prudential, Legal & General and Aviva, which introduced post code rating to the market in 2008.

Providers say their post code mapping systems allow them to be fairly sensitive to disparities in affluence levels within suburbs.

“We can look at information on a street by street basis, so it is not broad brush,” says Darren Dicks of Aviva.

“We can drill down to this level.”

However, the rates offered by providers for the same post code do differ. Quotes provided by Annuity Direct show a difference of 3-7 per cent for the same post code.

“These providers typically add up to 3 per cent to annuities for those living in poorer neighbourhoods,” says Bob Bullivant of Annuity Direct.

“With Canada Life’s entry to the market we can almost certainly anticipate the vast majority of life firms discriminating by post code,” says Bob Bullivant of Annuity Direct.

Financial advisers say the losers from post code ratings are those who live in affluent post codes but who are in poor health.

These individuals, who may have a shorter life expectancy because they smoke or have diabetes, but are offered the same rate as a healthy neighbour who goes to the gym and does not smoke.

Advisers say individuals in these circumstances should declare any medical conditions when they apply for an annuity as it could make a big difference to their retirement income.

”Enhanced or impaired life annuities are available to individuals who smoke, are in poorer health or take prescription medicines,” says Nigel Barlow of Just Retirement.

“Enhanced or impaired life rates can make a big difference, perhaps thousands of pounds, to retirement income.”

According to quotes provided by Just Retirement, a 65-year-old male with diabetes, who has high blood pressure and cholesterol and takes medications could receive up to £600 a year more for his annuity than the best standard rate for a conventional annuity.

“It is very important to ask for the medical questionnaire or declare your medical history when applying for an annuity,” adds Barlow.

“Annuities are a one-off purchase so you must be sure to take everything into account to get the best rate.”