Annuities and the Postcode Lottery
A recent innovation in annuity pricing, will leave those in affluent “middle class” postcodes facing even smaller annual annuity payouts.
One of the UK’s biggest insurance group’s Legal & General has decided that people living in areas with a higher than average household income, are more likely to live longer and so it will be offering them a less, by way of annual income, for their pension pot from now on.
Legal & General has hailed the move as a “natural evolution” in the annuity market pointing out that postcodes are already used when pricing peoples’ home and motor insurance.
However, the insurer nicely overlooks that the logical of what it is proposing will see those living in nicer areas being offered smaller annuities.
How to avoid postcode pricing
Moving to a less desirable neighbourhood just to procure a higher income, may be a step too far for most. For the time being it is just one insurer Legal & General, so it could be worth going to another company to see if they offer a better rate.
Alternatively, delaying when you start your annuity will boost the annual sum. At present UK law says that anyone with a private pension (which is not a final salary pension) has to take out an annuity by the time they turn 75.
Delaying up to that point, however, can seriously up what you get.
According to recent research delaying taking out an annuity for 10 years, would add around £2,500 to the annual payment.
The other alternative is that when it comes to buying an annuity, it is the one time in your life when it pays to be in poor health.
It really does pay to declare every little ache and pain on your application or to your financial advisor.
Taken in isolation, slightly raised cholesterol, high blood pressure, or being a smoker might not seem that big a deal, but the cumulative affect they can have in raising your annuity offer can be significant. See impaired annuity section
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