NU increases risk factors in annuity pricing

by Gill Montia

Story link: NU increases risk factors in annuity pricing

From November of this year, Norwich Union (NU) will be including clients’ postcodes, marital status and use of tobacco in its method of pricing its annuities, which give an annual income for life in exchange for pension savings.

NU annuity prices are currently calculated on the basis of a person’s age, gender and the size of their pension pot.

The new risk factors are being introduced so that those with lower life expectancy (who tend to be the less well off) do not end up subsidising the pension incomes of those who are wealthy and expected to live longer.

A pilot scheme is being launched in September, just one year after Legal & General began to include postcodes in its annuity pricing mechanism.

The change meant that those living in affluent areas are offered a lower pension income than those in poorer areas, because wealth increases longevity.

However, NU, which holds around 10% of the UK pensions market, believes it has developed a more advanced method of annuity pricing than its competitor.

The insurer expects the changes to result in a difference in annuity rates of between 1% and 2% and is predicting that around 70% of annuity clients will benefit from the changes.