Life Expectancy Another Postcode Lottery? Paul Crocker and Trevor Brooks of Hewitt Associates Look at the Growing Impact of Postcode Analysis on the World of Pensions

Article excerpt

Byline: Paul Crocker and Trevor Brooks

The "post-code lottery" is a common phrase at the moment.

Schools and access to NHS services are just two examples that have made headlines recently.

New data on the age at which people are dying means that postcodes can also be used by company pension schemes to improve their understanding of scheme members' life expectancy.

One thing that is clear, is that people are living longer and that this trend is expected to continue.

The graph below shows just how rapidly life expectancy has increased since 1950.

Increasing life expectancy has a clear impact on pensions, since a longer lifespan means a pension must be paid for longer.

In a defined contribution pension arrangement (also known as money-purchase), an accumulated fund of money is used to buy a pension with an insurance company - and we are seeing more and more instances of insurance companies using postcodes to differentiate between individuals.

Where certain postcodes are associated with greater levels of wealth and longer life expectancy, it can translate to a lower pension for a given retirement fund, since that pension is expected to have to be paid for a longer period of time.

So if you have one of these types of pension arrangements, it's likely that your postcode will be used to determine how much pension you end up with.

For a defined benefit pension scheme operated by an employer for its employees (also known as final salary scheme), a pension is typically based on an individual's salary and service. Increases to life expectancy mean that a given annual pension will cost more to provide.

This is a cost that must ultimately be met by employers, so it is vital that those involved with this sort of pension scheme have as complete an understanding of their scheme as possible.

Much of the research on the subject of life expectancy has concentrated on the question of just how much life expectancy is expected to improve by.

However, there is just as much uncertainty about the rate of improvement in life expectancy as there is certainty that it is improving.

But one aspect of the life expectancy question that is often overlooked is an analysis of the characteristics of the scheme population in question. This is where postcodes can be a useful indicator.

It must be remembered that the area where you live is just one of many factors affecting life expectancy. …