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Advisers stamp on postcode annuities

Advisers have poured scorn on a joint pilot study by Legal & General and Hargreaves Lansdown which aims to use customer postcodes as a risk factor in determining annuity rates.

Conventional non-profit pension annuities are normally determined by using age and gender to assess life expectancy but L&G claims there is evidence suggesting that where a customer lives can also influence how long they are likely to live.

Annuity Direct managing director Stuart Bayliss says customers in poorer areas will get a better rate, which will leave less residual in the pot for those living in better-off areas who will get lower rates.

Bayliss says: “You cannot make one and a half pints out of a pint. There is only one pot of money. If this was being done properly, you would be giving consumers a different rate. We are not talking an extra £24 a year but something in the region of 15 or 20 per cent.

“You cannot get away from the fact that those in better areas will get less. It is a patronising gesture to the man from Glasgow and just as patronising to the man from Guildford. They are bottling out from a real challenge.”

Norwest Consultants principal Harry Katz says this is a publicity stunt and will provide a very small annual difference to pensioners.

He says: “In general, people in poorer areas tend not to have pensions anyway. And what happens when poorer areas become gentrified? The rates will hardly be life-changing by the sound of it.”

Hargreaves Lansdown head of pensions research Tom McPhail says: “I think these are misguided criticisms. The principle is sound and this is a pilot scheme to explore the validity of this as a pricing mechanism. I think we will continue to see more segmentation of the annuity market. This is simply one element of a trend that is already well under way.”


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