by Nathalie Knowles Radio 4's Money Box

Your retirement income could be determined by your lifestyle and postcode, if new annuity plans take off.

Insurance companies have been looking for an answer to the problem of funding an ageing population living far longer than it used to.

But the idea may well prove controversial.

If you live in the South, your income will be lower than those in the north, as data analysts predict you will live longer.

People in the north with lower life expectancy will therefore be offered more money.

By the age of 75, anyone with a personal pension or defined contribution occupational pension must use at least 75% of their pension pot to buy an annuity.

The annuity then becomes their retirement income.

The reform campaign

Plummeting annuity rates over the last 10 years has led to an active anti-annuity lobby, campaigning for reform of current rules.

And the number of people affected by annuity rates is increasing.

With companies cutting back on final salary schemes and shifting into money purchase schemes, more and more people will be forced to buy an annuity.

When Money Box spoke to William Mowatt of Britain's largest insurer Norwich Union, he confirmed they are looking at different ways of pricing.

Mr Mowatt said the insurer already offers better value for people with "serious medical impairments" as such people have a shorter life expectancy.

Lifestyle pricing

He explained: "The market will evolve. We will see more lifestyle pricing, we will look at other factors that will effect mortality, such as location, occupation and smoking status."

When asked if people would tell the truth on a form that would determine their income, Mr Mowatt denied there would be a problem:

"From our experience, when people are applying for insurance products they give us true information".

He admitted that "it is still based on averages" but claimed that it is not something that would necessarily affect the mass market.

"There would still be a standard price out there... the plans would more likely affect the larger funds".

Individual factors

The Annuity Bureau's David Marlowe, said this was not a completely new idea:

"Annuities have already been developed that are more closely linked to the individual factors of the annuitants themselves... but this would be a first in paying lower rates of income."

In a climate of pension panic, amid a growing annuity market, it seems new proposals will continue to emerge.

Only last week, The Association of British Insurers proposed a cash back scheme which would allow insurers to pay a refund in the event of early death.

David Marlowe said of the scheme:

"We welcome that development as it provides more choice to people."

Although the ABI survey found that nearly half of retired people would be interested in this scheme, Mr Marlowe felt the important factor to consider is that "For a lot of people the key is maximising your own income."