Where you live impacts on your retirement income due to varying life expectancy statistics. Which? takes a look at the annuity rates postcode lottery.
Analysis has shown annuity rates can vary by as much as 6%, depending on where you live, as the latest figures from the Office of National Statistics (ONS) reveal a ten-year difference in life expectancy between Southern England and the North East.
Postcode lottery for annuities
Life expectancy statistics are used by annuity providers as a proxy for how long you might be receiving pension income. This is why rates can vary across the country, depending on your postcode.
Where the Office for National Statistics gives high figures, such as East Dorset where male life expectancy at birth is 83 years, annuity rates are lower than locations such as Blackpool, where the equivalent life expectancy figure is 73.8 years.
According to brokers Hargreaves Lansdown, an annuity purchased with £100,000 by someone in Dorset would pay £5,823 a year, while in Blackpool it would pay £6,173.
Action point: Once you’ve bought an annuity there’s no going back, so make sure you get it right first time with the help of our guide to buying an annuity.
Life expectancy figures don’t tell the whole story
Although figures for life expectancy at birth influence annuity quotes, they don’t tell the whole story.
Life expectancy at the age of 65, when most people buy an annuity show far less regional variation. The North East, for example, is still lower at 82.5 for men, compared to 84 in the South West, but the gap is only 1.5 years.
And when individual factors, such an individual’s state of health and lifestyle (such as smoking or obesity) are taken into account, geographical location becomes less significant.
Those in poor health may qualify for an enhanced annuity, which lifts their pension income above average rates regardless of where they live.
Shop around for the best annuity rates
Annuity rates vary by provider.
Those with a defined contribution pension pot should shop around and compare rates from a range of firms, rather than simply accepting the first deal they are offered.
By exploring the open market option (OMO), they are likely to get a rate that truly reflects their individual circumstances.
As well as securing the best rate, it’s also important to get the right .
Single-life level annuities give the highest annual figure, but for many couples a lower joint-life annuity will be more appropriate- providing a surviving partner with continuing income rather than ceasing with the holder’s death.
For more on this, read our round-up of annuity options.