More 'affluent' may see retirement income drop

August, 19, 2008

People saving for pensions with Prudential could lose money if they are deemed to live in affluent areas, says a report.

Prudential will start to calculate annuity rates according to what area you live in because those who live in more affluent areas may live longer, according to the Times.

The incomes of those who live in places such as Kensington or Wandsworth in London, or Saffron Walden in Essex, could drop by an estimated five per cent.

As well as Prudential, Norwich Union and Legal & General also calculate annuities based on where people live. When Norwich Union announced it would use this method last June it said that up to a third of its customers could lose money, says the Times.

The pension providers already take age and gender into account as well as health related factors, such as whether a person smokes, when calculating annuities.

An annuity is a guaranteed income for life in return for a one off lump sum payment. There are several different options for retirees, including enhanced and impaired annuities for those with medical conditions and joint annuities between couples.