If you have worked hard to be able to afford to live in one of the wealthier parts of the UK, then on retirement you'll be soundly punished for it - with a pension annuity payout that's up to £10,000 lower than elsewhere in the country.

Annuity companies are paying more and more attention to where you live when they are calculating your pension payout, and the better the area, the less you can expect to get. So why is this, and can you beat the system?

How postcode became an issue
The idea of annuities is that you put your money in and you get a guaranteed monthly payment for life (usually). In order to decide what to pay you each month, the annuity provider will try to work out how long you are likely to live. At the moment it means taking into account things like your health history and whether you are male or female.

It also means taking note of where you live, and average life expectancy in your area. This used to be a less important part of the calculation, but next year the annuity companies won't be allowed to take gender into consideration, so location is taking more prominence. Already every single insurance company takes it into account. This compares to 2006 when none did.

Wide variations
It means that if you live in leafy Surrey, for example, you will get a lower monthly payout than someone from the centre of Birmingham or Glasgow. Life expectancy varies a great deal around the country. The highest is in Kensington and Chelsea in London where women are expected to reach 89 and men 84. In Glasgow, by contrast, it is 77 for women and 71 for men.

These figures translate into very different payouts, and someone using a £100,000 pension pot to buy an annuity at the age of 65 would get £400 less a year in the posher postcodes - which would work out as £10,000 over 20 years.

There are plenty of instances where this is clearly unfair. If you happen to live in affordable housing in a posher postcode - after having done manual labour in a hazardous environment for 40 years - your life expectancy will be lower than average but your pension will not reflect that. Likewise if you're a multi-millionaire with a pampered lifestyle living in a Glasgow penthouse, you'll get a far higher pension than your life expectancy would dictate.

So can you beat the system?
You can't get around postcoding entirely, because the providers all use it. However, it's worth going to as many different providers for a quote as you can, because they all use the postcodes differently, and have a different view of quite what effect it has. It means you may well get a much better deal by shopping around.

You could, of course, move - or if you have two properties, consider registering the one in the less affluent area as your main home - provided of course that this is a true reflection of the situation.

However, by far the best option is still to get as clear a picture of your position as possible. Never just accept the annuity offered by your pension company, make sure you shop around the whole market. If you are in poor health, make sure you tell the insurers, as it can make a massive difference to your payout. If the process is too daunting, you can use an adviser, which will definitely pay dividends in the long run as they will be able to ensure you get the best annuity possible - wherever you live.

So what do you think? Is the use of postcodes fair? Let us know in the comments.