FTAdviser.com

Advertising

The introduction of postcode annuities will see a sharp increase in the take-up of alternatives such as third way annuities and income drawdown, Nigel Callaghan, pensions analyst for Hargreaves Lansdown has claimed.

Speaking about Norwich Union's decision to introduce the system, Mr Callaghan said this would lead to a jump in demand for alternative products among the wealthy.

He said: "There are clearly going to be winners and losers in this situation. The provider has said that, come November, 70 per cent of clients will receive the same or better returns. However, that means 30 per cent won't be getting a better deal and it, therefore, obliges them to look elsewhere.

"The wealthier and the healthier will be left with a smaller annuity and they will look to alternatives such as drawdown and third way annuities."

Going forward, Mr Callaghan said it was almost certain other providers would follow Norwich Union's lead meaning these alternative products would see rapid growth from September onwards.

He said: "The retirement market is a huge growth area anyway and other pensions providers will follow suit.

"This is a very big thing in this sector and they will want to hoover up the people with typically shorter life expectancies."

At the beginning of June, Norwich Union announced plans to revamp the pricing basis of its annuity to include postcode, marital status and smoking habits as risk factors.

Currently Norwich Union prices annuities on the basis of a person’s age, sex and the size of their pension.

Its competitor Legal & General currently prices annuities according to whether clients live in the north or south of England.