Legal & General to improve pension income for customers

Following a successful pilot study with Hargreaves Lansdown, Legal & General will be using customer postcodes as an additional risk factor when quoting for a conventional non-profit annuity from Wednesday 7th November 2007.

This means that customers may receive an increased annuity rate over and above Legal & General’s standard rate, depending on where they live.

This is the next step towards increased pricing sophistication in the conventional annuity market, which remains the product of choice for the majority seeking a guaranteed regular income in retirement. Drawing on Legal & General’s extensive longevity expertise, the pilot study shows that postcode pricing will result in a significant number of customers benefiting from an increased income in retirement. In addition, those customers who do not qualify for an increased rate can still benefit from the standard annuity rate.

Simon Gadd, Managing Director, Legal & General’s annuities business said; “The pilot has confirmed what we believed, that this innovative approach for the individual annuity market is viable and, more importantly, beneficial to our customers. Our approach ensures that the longevity risk for our customers is more accurately assessed and is then reflected in the improved rates we are able to offer.“Using other indicators rather than just age and gender to assess life expectancy is a natural evolution for the individual pension annuity market. We view postcode rating as just the start and we will be exploring other methods of more accurately assessing life expectancy in the future.”

Tom McPhail, Head of Pensions Research at Hargreaves Lansdown commented, “Legal & General’s decision to use the postcode rating more widely is great news for the market and those annuity customers who will benefit from this new approach. This is a bold step that will shake up the annuity market. “The current system of underwriting the majority of annuities that are purchased is just on the basis of age and gender. This is out of date and grossly unfair to the poorest groups in society. There has been some negative comment made about the accuracy of applying postcodes but Legal & General has the data, experience and expertise to support this development. We are confident that there will be a significant number of our customers who will benefit from an uplift in their pension income as a result, who would not have done so previously.”