Postcodes could be used to determine the level of pension payments, if a pilot scheme by Legal &†General and Hargreaves Lansdown is successful.

The pilot scheme, which is scheduled to run for two months before being reviewed, will use a person's location to assess their life expectancy and price pension payments accordingly. Those living in poorer areas may then receive a higher annuity income as they may not be expected to live as long as people in wealthier postcodes. This could translate into an improvement in annuity income of 1.2% for 60 year-old men and 1.1% for 60 year-old women, based on a pension fund of £30,000.

Simon Gadd, managing director of Legal & General's annuities business, said: "We believe that postcodes are a reliable rating factor and will mean we are able to accurately assess and so price the longevity risk for each customer. We aim to ensure we offer annuity customers true value for money in the future."

Gareth Evans, head of corporate affairs for Scottish Life, added: "It is a well-established fact that peoples' life expectancy can be influenced by where they live. It can be proven that in certain areas life expectancy is higher than others, but I don't think that it is as clear cut as some other factors such as gender. Nonetheless, this is an interesting move and one we will watch closely."