If you are considering retiring by purchasing an annuity from your private pension fund, we at Annuity Arrow always urge you to shop around for the best annuity rate. However, this now particularly important if you live in what might be deemed an affluent area because more and more pension annuity providers are introducing post code ratings for pension annuity rates.

Canada Life decided in December 2009 to link its annuity pricing model to post codes, which means those purchasing an annuity who live in areas deemed less affluent are offered higher annuity rates because of assumptions being made by the insurance company that they will have a shorter life expectancy.

Please read our introductory online guide to annuities. You will then know that an annuity is purchased from an annuity provider or insurance company in exchange for a lump sum (normally your pension fund). In exchange the annuity company pays a regular agreed income for life or a pre agreed period of time.  The amount of income to be paid is called an annuity rate and is calculated by actuaries.  The annuity rate is dependent on many different factors and variables that include age, the size of the pension fund, health, lifestyle, weight and increasingly your post code or address.

In December 2009, Canada Life was reported as saying that individuals living in affluent areas could expect to a receive a pension annuity rate of up to 7 percent less as their address and post code is considered to have longer life expectancies due to better health and lifestyles.

Initially it was the newer entrants to the annuity market that introduced the post code/address related annuity rate factor but now most of traditional annuity providers are now doing it; such as Canada Life, Aviva (formerly Norwich Union) and Prudential.

Peter Gould of Canada Life commented at the time, “We think it is a fairer system because currently someone who lives in Chelsea is expected to have a higher life expectancy, and draw longer on their annuity, than someone who lives in an area where life expectancy is shorter.”

We at Annuity Arrow has found when producing annuity quotes that differences also exist between the different annuity providers for the same post code or address. We have seen a difference of 2-8% on the same post code or address and typically up to 4% added to the annuity rates of those living in less affluent or perceived poorer post code addresses.  Unfortunately, we have found that this post code system can work against those that live in so called affluent areas but are in ill health because the same post code factor is applied to them. However, no system is perfect and there are always going to be winners and losers. That is why it is particularly important to speak with an annuity advisor consultant such as Annuity Arrow because we will look at all of your circumstances to ensure that you get the best available annuity rate because such people might qualify for an enhanced or impaired life annuity. Such impaired life annuities can make a big difference to an annuity rate and retirement income.

Annuities are a one off purchase that cannot be revered so you need to make sure everything is taken into account to get the best rate possible.