Postcode Annuities are intended to reflect the fact that life expectancies vary throughout the UK.
It’s been known for sometime that people who live in affluent areas tend to live longer, healthier lives than those who live in less affluent areas of the country.
Below is an example of how life expectancies vary in the UK.
For the period 2008-2010, on average, a man aged 65 in the UK was expected to live for another 18 years. The corresponding figure for a woman aged 65 was 20.6 years.
During the same period, the local area with the highest life expectancy for males aged 65 was Kensington and Chelsea with 24.4 years. The corresponding figure for a woman aged 65 was 27.5 years.
Glasgow City had the lowest male life expectancy at age 65 of 14.3 years, compared to 17.8 years for women of the same age.
So you can see from the above example that people who live in Kensington and Chelsea are on average expected to live 10 years longer than someone who lives in Glasgow.
Postcode Annuity rates are a crude method of reflecting these regional differences in life expectancy and they have the advantage that they do not require the annuity provider to dig deeply into a retiree’s medical history, work history and/or lifestyle.