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Last Updated: Saturday, 10 November 2007, 14:46 GMT
Insurer offers postcode pensions
By Paul Lewis
BBC Radio 4's Money Box

Street name sign for Albert Square
In places with low life expectancy, annuities will be higher
A major insurer has started varying the pension it pays depending on where people live.

Following a pilot scheme, Legal & General says it will now pay higher pensions to people who live in areas where life expectancy is short.

But it denies it will cut pensions paid in areas where people can expect a longer life.

In future, the insurer says it may pay pensions relating to other factors such as obesity and lifestyle.

How the scheme works

The postcode related pensions have been piloted and Legal & General's Managing Director for Annuities, Simon Gadd, told Radio 4's Money Box programme that they would now apply nationally.

"If a customer provides us with their postcode we will look at that against our database.

"If we think that postcode corresponds with an area where people are relatively poor, we can proxy that against a lower life expectancy and we can give those customers a slightly better pension."

I see no reason why people at the lower end of the scale should be subsidising those at the upper end
Billy Burrows of William Burrows Associates
The difference, which would only be 2% to 3% a year more, reflects the fact that people in some areas will, on average, have a shorter life expectancy and so will draw their pension for a shorter time.

For example, 65-year-olds in Glasgow live around ten years less than those in Chelsea, one of the wealthiest parts of London.

Legal & General says the extra cost will be paid for by profits from the new business, not by cutting the pensions paid to people in wealthier areas.

A fairer deal?

Billy Burrows of William Burrows Associates, whose business is finding the best pension annuity for clients with a pension fund, says the new system is fairer.

If insurers pay the same pension to everyone, then poor people, who live a shorter time, subsidise the longer lives of the rich.

Someone drinking a pint of beer and smoking a cigarette
Some insurers already pay higher pensions to smokers

"I see no reason why people at the lower end of the scale should be subsidising those at the upper end."

He already advises anyone about to get an annuity to see a doctor, in case they have an illness they are unaware of, which will boost the pension they get.

"People who are in good health will get a lower annuity, but they have more choice anyway.

"One choice will be to wait and buy an annuity later when they are in poorer health."

Already some insurers pay higher pensions to smokers and those with life-reducing illnesses, and Simon Gadd told the programme that,

"Over time more factors will be introduced: obesity could come into it, what kind of job you do, salary and so on."

BBC Radio 4's Money Box was broadcast on Saturday,10 November 2007 at 1204 BST.

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External internet links
09 Nov 07 |  Moneybox
Have Your Say: postcode pensions
09 Nov 07 |  Moneybox
Postcodes used in pension sums
31 Aug 07 |  Business

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