Insurers make 'excessive' profits from loyal pensioners Savers persuaded to take substandard deals are locked in for life, turning the £1,444 annual loss into £43,320 over a 30‑year retirement. Many pensioners will die before their life savings are returned in full, calculations show. On the poorest rates, someone would need to live to 86 just to get his or her money back. In some instances, savers suffering illnesses are being offered less than half the going rate for their shorter life expectancy. The Daily Telegraph has heard from a customer who discovered a 103pc difference in the rates he was offered because some firms failed to cater for medical conditions. The worst rates are typically offered by "closed" providers, which cater only for existing customers. Any money left over when people die trickles into a "pool" that the firm can use for its own purposes. A large portion is understood to be pure profit. Publicly, though, insurers insist this money represents the high cost of guaranteeing lifetime payments, as firms must source investment returns and estimate life expectancy. Alan Higham, director of advisers Annuity Direct, said: "Firms offering the worst rates are either incompetent at investing money or making large profits. No doubt there are large risks with issuing annuities, but many customers are getting truly awful rates. More than half of the 420,000 people who buy an annuity each year could be affected. Research shows that 52pc accept the deal offered by their existing pension provider, netting providers an estimated £1bn a year. Pension firms invest heavily in predicting how long payouts will need to last on each annuity sold. Most use customers" postcodes as a proxy for quality of life - and therefore life expectancy. A number now calculate payouts based on specific health conditions, including smoking. Despite similar processes, rates vary wildly for identical customer profiles. In the ABI data, Scottish Widows and Clerical Medical, part of government-backed Lloyds Banking Group, paid £839 a year on each £18,000 turned into an annuity by a healthy, single 65-year-old. By contrast, Reliance Mutual offered £1,099 - equivalent to 31pc more. Someone with severe lung disease after at least 10 years of smoking could get £1,778 at Prudential - an increase of 112pc on the worst standard rate. However, of the 24 providers in the ABI tables, nine failed to cater for this illness. Of those that did, Reliance Mutual offered the worst deal at £1,215. A customer who failed to shop around would be left out of pocket. The tables form part of an annuities code of conduct launched in March. Insurers must now contact customers two years, six months and six weeks before retirement, explaining the benefits of shopping around using an adviser or broker, and stressing the importance of declaring medical conditions and providing for a spouse (see box, right). Stephen Freeman, 61, narrowly escaped a poor deal. Last year, Mr Freeman, from High Wycombe, was offered an annual £489 by Phoenix Life. He shopped around with Nationwide and eventually received £995 a year at Partnership, thanks to his chronic obstructive pulmonary disease (COPD), which restricts his breathing slightly. This represented an increase of 103pc. Chris Ruocco, a north London tailor (pictured), secured a 21pc boost. Mr Ruocco, who has worked for stars such as George Michael and Diana Ross, takes pills to keep his raised blood pressure in check. He switched from Standard Life to Just Retirement, which specifically caters for those with an illness. Mr Ruocco, a tailor in Kentish Town since the age of 25, said: "You need an awful lot of money in retirement - the rates are so low - so everything counts."