Thursday, November 08, 2007


One of the headlines in “The Times” Business Section today claims that “Wealthier pensioners ‘may subsidise the poor’”. The drift of their argument is that because people in the North die sooner than their Southern counterparts, they should receive a higher annual annuity payment from life insurance companies to compensate. Legal and General are proposing to add up to 3% to annuities paid to customers living in deprived areas of the UK – hence the “subsidy” headline.

Unless my brain has faded earlier and further than I had imagined, this suggestion of subsidy is grabbing totally the wrong end of a very large stick. The scary facts are that the average man in Glasgow City dies at 69.9 years, and his equivalent in Kensington and Chelsea lives until he’s 82.2, 12.3 years longer. If both of them had taken out an annuity when they reached 65, the Scotsman would have benefited for 4.9 years, and the Londoner for 17.2 years – some 250% longer. If their annual payment was £10,000, the Scotsman would be paid £49,000, and the Londoner £172,000.

Yet, until now, it would seem that their annuity payments, presumably for the same level of capital input, would be the same. Now I know, being a long-lapsed member of the Accounting Underclass, that the sums you see above have not been done with the same intellectual rigour as used by our actuarial friends, but if you look at them through the eyes of a man on, at least, the lower deck of a Clapham Omnibus, it is difficult to prevent the word “scandalous” from coming into your head.

This 3% is not the case of wealthier pensioners subsidising the poor, but the start of a recognition that the poorer members of our nation, by dying early are, and have been for many years, subsidising the wealthier members of the land, and to an enormous extent. It would be interesting, to get somebody with a more comforting grasp than mine of the “smoke and mirrors” of Actuarial maths to work out what the real annuity rates for our Scottish friend, and his SW3 equivalent should be. I think we’d get a real shock!

Perhaps it goes some way to explain why the Scottish Insurance companies, with their preponderance of home based customers, seem to produce consistently better financial results than their English counterparts on their Life insurance business.

The name “Scottish Widows” is starting to seem more appropriate to me now.


No comments: