Posted: Fri Aug 31, 2007 1:36 am Post subject: Pensions become a "Postcode Lottery"
Middle-class earners were dealt a new blow to their hopes of a comfortable old age yesterday.
The pensions industry announced a scheme to set retirement payouts according to postcode.
It means those who live in apparently more prosperous and healthy areas of the country would receive less generous pension payments than those in less affluent districts.
Financial analysts want to boost annual payments to pensioners in poorer areas because they are expected to die sooner.
Those who live in leafier postcodes would be paid less every year because of an assumption that they are healthier and will live longer.
Their overall pension pot should, in theory, end up the same because it will be paid out over more years.
But many in wealthier postcodes may well die sooner than anticipated - meaning they will have been discriminated against with lower payouts every year of their retirement.
The plan to pay pensions by postcode has been developed by the Legal & General company.
The plan to pay pensions by postcode has been developed by the Legal & General company
Its annuities chief Simon Gadd said: "Postcodes will mean we are able to more accurately assess and so price the longevity risk for each customer."
Tom McPhail, of Hargreaves Lansdown, a financial consultancy involved in developing the scheme, said: "Taken to its logical extreme, I would expect that people with high life expectancy would in the long term get lower pensions."
The lesser pensions for living in a betterclass area will affect the one million who are believed to have their own private pension scheme and the five million estimated to have private sector occupational pensions.
The great majority of this latter group are in defined contribution schemes which do not guarantee the size of their income in retirement.
A member of one of these pension schemes pays a regular contribution to the insurance or finance company that runs it.
The money is invested and produces a pension pot once the worker comes to retire.
At that point the individual uses the cash to buy an annuity which will pay a regular income in retirement.
The company running the scheme has to calculate how much the pot will cover.
The length of time the individual is likely to live is a central factor which actuaries try to work out in deciding how much to pay each week or month.
The postcode scheme means that annuity will pay out less each week or month to those in areas where they are likely to live longer.
The development comes on top of a series of pension blows to workers in private business and industry over the past decade.
In the wake of Gordon Brown's £100 billion tax raid on pensions in 1997, firms have closed down more than 2,000 of the final salary pension schemes which used to provide staff a guaranteed income in retirement.
The defined contribution schemes that have replaced them pay much lower rates and put the worker at the mercy of stock market instability.
The millions of workers with lower pensions as a result are also paying higher taxes to meet the fast-rising bills of the gold-plated inflationlinked pensions enjoyed by the vast majority of public sector workers.
A far higher proportion of people work for the public sector in the poorer parts of the country.
Private-sector workers in these poorer areas will, however, benefit from the postcode pensions.
Areas where pensioners would get lesser pensions would include wealthy city suburbs and rural districts.
Life expectancy in England and Wales, according to the latest calculations, is highest in the London borough of Kensington and Chelsea, where men can expect to live 80.8 years and women 85.8.
Large areas of the South-East and East Anglia are among the districts with the highest life expectancy.
For example, men in South Norfolk can expect to live for 79.7 years and women in the Epsom and Ewell area of Surrey for 84.2.
By contrast, higher pensions would go to those in Manchester, where male life expectancy is 72.3 years, Blackpool (72., Liverpool (73.2) and large areas of the North-West and the North-East.
Many pensioners in Glasgow, which has the lowest life expectancy in Britain at 69.9 years for men and 76.7 for women, would also benefit.
Simon Gadd, managing director of L&G's annuities business, said: "Using other indicators of life expectancy, rather than just sex and age, is a natural evolution for the pension annuity market.
"A customer's medical history and lifestyle factors such as smoking, obesity and high cholesterol are now readily accepted in the pricing of enhanced annuities.
"Through our extensive experience data we believe that postcodes are a reliable rating factor and will mean we are able to more accurately assess and so price the longevity risk for each customer."
He said the continuing improvements in life expectancy made it increasingly important that annuity providers became more sophisticated in the way they assessed risk and used all the relevant information and tools available to them.
Mr McPhail, head of pensions research at Hargreaves Lansdown, said: "It is important that the annuity market continues to look for new ways to give investors better value for money.
"The annuity market has been very traditional in its approach to pricing the risks involved.
"Using just age and sex is a blunt instrument for annuity pricing and it's a well established fact that where you live can determine how long you may live."
But some pension industry experts believe the development of pension postcodes will mean that those in higher income areas are increasingly likely to desert traditional pensions in future years.
Instead they will look to put their money into investments not covered by pension regulations, which are run by banks and companies that offer to use them to produce a regular income.
I think that is very wrong. If you pay in the same amount as someone else why should you receive less in payouts.
I was just wondering about state pensions, are they standard throughout the country? Some areas are a lot more expensive to live in than others. Ours has very reasonably priced goods, food and houses, I think, but quite high council tax, so many people are exempt, they take in very little money. _________________ Marie
Yes, Marie, the Basic State Pensions are the same for everyone no matter what part of the country you live. _________________ http://sewardchronicles.ning.com/
What a ludicrous assumption that someone living in a relatively affluent area, is going to outlive someone living in a less well-off area!! Many people living in areas that are now home to the nouveau riche, have lived there for many years, bought their homes long ago, before prices rocketed. They will not necessarily be healthier than those in poorer areas. There are many people moving up here from the South. They sell their homes, and are able to buy far bigger homes for the same money up here. Why should they get a better pension???
I bet the morons that come up with these ideas wil get a huge pension (paid by us, no doubt) _________________
Except for my first job, Sherrif, many years ago, none of the jobs I worked at subsequently were pensionable, oh, sorry, the Post Office was, but, sadly, after that disasterous strike, I never worked there long enough to reap the benefit. The same goes for London Transport. Wasn't there long enough to qualify for any works pension. So I am totally reliant on State Benefits, not an ideal situation, but probably my own fault for not sticking with any job long enough! _________________ http://sewardchronicles.ning.com/
AAH! Those were the days! Don't like this job, I'll quit and get another one. Jobs were so much easier to get then. None of the role-playing garbage you have to go through now. My last job was Civil Service. Because of my attitude, I had to go on courses, with titles like "Working as part of a team" I'm afraid I took exception to this rubbish - as I was in my mid-50's, I'd worked all my life as part of a team, including 22 years in the RAF. The reason for my "Attitude"? - My job description was changed totally, I was moved from my own office to an open-plan area in a huge office, and to add insult to injury, my desk and all my filing cabinets, and all my personal effects, were moved to this new hell while I was on leave!! As no one in Personnel, or the union, could be bothered, I eventually pushed to be pensioned off, as I have a heart condition that was not improved by walking up 3 flights of stairs. ( New building - no lifts!!!)
Moan over. Have a nice day! _________________
I was self employed for most of my working life and beinga young widow
with three childred I never had enough to invest in private pensions,so I depend on the state pension too
_________________ The purpose of life is a life of purpose
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, Liverpool (73.2) and large areas of the North-West and the North-East.
