Norwich Union is to introduce postcode-rated annuities, following Legal & General who adopted a similar pricing mechanism over the past year.

Norwich Union’s entry into postcode-rated annuities is further evidence of the rapid evolution taking place in the annuity market.

The situation can be seen as a ‘tipping point’, with the increased use of personalised annuity rates, such as postcode and enhanced annuities, reaching critical mass.

Hargreaves Lansdown expects to see more insurers going down the rating process road, leading to a far greater difference in rates, depending on investors’ health and wealth. Investors will increasingly be offered a rate that reflects their own life expectancy, rather than one from a large pool of people.

It is also expected that the standard rate for healthy lives will come under further downward pressure.

All this activity turns the spotlight on to the open market option (OMO), which is currently used by fewer than 40 per cent of retiring investors. There is a growing demand to make the OMO the default option when investors convert their pension savings into an annuity. If all investors bought their annuity via the OMO, this could treble the size of the OMO market.

Nigel Callaghan, pensions analyst at Hargreaves Lansdown, says, ‘This dynamic evolution in the market is a reflection of the huge sums of money involved; for the pensions industry, the stakes are already high and they’re going to get a lot higher. From investors’ point of view, the wider choice on offer only has value if they actually exercise that choice; everyone must shop around with their pension fund at retirement. If you don’t, then you are going to miss out.’