"Postcode" annuities to hit the affluent

By Jennifer Hill, Personal Finance Correspondent

LONDON (Reuters) - Norwich Union is poised to shake-up the annuity market with new pricing that could leave those living in affluent neighbourhoods worse off in retirement.

The insurer -- which commands about 10 percent of the British pensions market -- is to start taking into account people's postcodes, marital status and smoking habits when deciding how much annual pension they will receive.

Annuities give an annual income for life in exchange for pension savings and are based on factors used to determine how long a customer is expected to live; the longer, the lower the payout and vice versa.

Norwich Union currently bases annuity rates on a person's age, sex and the size of their pension.

The changes will largely mean that those living in affluent neighbourhoods, who are generally expected to live longer, will be offered a lower rate than those in deprived areas.

"The healthy and wealthy will no longer be cross-subsidised," said Nigel Callaghan, pensions analyst at independent financial services firm Hargreaves Lansdown.

"The annuity market is rapidly changing to individual pricing and there will be significant winners and losers among retiring investors."

Norwich Union expects 30 percent of annuitants to be worse off as a result of the changes on September 22. The remaining 70 percent will be in a similar or better position.