Enhanced annuities – not just for “ill” clients

By Cathy Luzmore

When most people reach retirement, they will convert their pension fund into an annuity. An annuity is used to provide a monthly income for the rest of their life. A pension annuity is therefore a way of turning the pension fund you have built up into a regular income for as long as you live.

The income you receive will depend on the size of your pension fund, and the market conditions at the time you buy your annuity. Specifically, it will depend on the amount of money left in your pension fund after you have taken any tax-free cash lump sum and the pension annuity rate offered by the pension provider (this can vary between providers, which is why it is worth shopping around).

Currently the annuity rate that you will be offered will also depend upon your sex (women will get a lower pension income because statistically they are expected to live longer), your age (the younger you are when you take your pension, the lower the income you will get) and your health or lifestyle (you may get a higher income if you are a smoker, or if you are in poor health). Recent EU legislation has made it illegal to discriminate on the basis of sex and so, as from 21st December 2012, annuity companies cannot use gender to offer different annuity rates to customers.

An impaired life or enhanced annuity will pay more money than a normal pension to people who have health problems which might threaten to reduce their lifespan.

However it isn’t just people in poor health who will qualify for an enhanced annuity. Lifestyle issues such as smoking, being overweight or high alcohol consumption can qualify you for an improvement to the standard annuity rate on offer.

Other medical conditions which you may have lived with for many years and which are “managed” due to medication, such as diabetes or high blood pressure, may also qualify for an enhanced annuity.

Recent figures estimate that 60% of clients could have medical or lifestyle issues that qualify them for enhanced annuity rates.

In addition, if you are looking for a pension for your spouse when you die, then their medical and lifestyle issues can also be taken into account. Even if you are fit and healthy, if your spouse has a qualifying medical condition, you could qualify for an enhancement to your pension annuity.

If you are able to answer yes to any of these questions, then you may qualify for a better annuity rate than you originally thought:

  • do you smoke?
  • do you drink 37 units, or more,  of alcohol each week?
  • are you taking any medications?
  • have you ever had hospital treatment for a medical condition?
  • Are you overweight?

It is not a time to be shy – make sure you disclose everything, even if you think it will not have any impact.

If you are about to retire, it is vital you get the best quotes you can on this issue as any increase in income will last for life.