Why not move to Glasgow and get a bigger pension?

By Ian Cowie
The Daily Telegraph
Your Money: Saturday 21 January 2012

Scottish independence is getting the politicians excited again but most people north of the border could gain more from evolution than devolution.  Before my mother and father disown me, I had better explain that I have just been looking at life expectancy statistics - and they make dismal reading for folk who will celebrate Burns Night next Wednesday.

For example, the average man living in Glasgow City will die 13 years and six months younger than his counterparts in Kensington & Chelsea, according to the Office for National Statistics.  While medical advances, improved diet and less smoking mean more people across Britain are living longer, the gap between lifespans for different groups of the population is growing, according to new analysis by the Longevity Science Advisory Panel released this week.

The main factor, of course, is money; the rich tend to live longer than the poor.  Steven Baxter of Club Vita actuaries - the professional mathematicians who advise pension funds - pointed out that these facts had important implications for people entering retirement.

He said: "People living in different parts of the United Kingdom should take different steps to get best value for their pension savings when they retire.  The reason is because of the way insurers allow for differences in life expectancy between different socioeconomic groups by regions in their annuity prices."

An annuity is a guaranteed income for life, which most members of defined contribution or money purchase pensions buy when they retire.  Those who live longest do best but those who die sooner never get their capital back.

So, for example, Mr Baxter said: "People living in the South West, the West Midlands and Yorkshire & Humber, which all have above-average life expectancy, may find buying an annuity attractive but people living in Wales and Scotland, with below-average life expectancy, may find income drawdown more attractive than buying an annuity."

Life companies have recognised these facts by adjusting most of the annuity yields they offer to reflect the purchaser's postcode, among other factors.  Smokers, for example, are paid higher yields because they are likely to die sooner and collect fewer annuity payments.  Non-smokers and residents of well-to-do areas are offered less because they tend to live longer and collect more.

So might it be worth buying or renting a bedsit in Glasgow and taking up smoking before buying an income for life?

Professional advisers were divided about what might be called the Rab C .Nesbitt annuity…….

Alan Steel, an independent financial adviser of Linlithgow, said:  "Annuity providers always ask if you smoke, but not when you started smoking, and there could be a similar opportunity for people with second properties.

"If you take up smoking and move to Glasgow before buying an annuity, you could be laughing all the way to the bank.  But turning up in a string vest with a tin of Irn-Bru would be going too far."
Pensioners planning to make the most of postcode annuities should always seek independent financial advice.  If you think life is unfair, just look at the facts and figures about death.

Quote courtesy of The Daily Telegraph
Saturday 21 January 2012