Is smoking a ‘healthy option’ when it comes to retirement? Interestingly, yes, and many retirees are missing out on thousands of pounds in lost retirement income by not buying a pension annuity that pays significantly better rates to those people with common health problems and those who are classed as regular smokers.
Financial advisers say that smokers, the overweight, and diabetics could boost their retirement income by buying an impaired life annuity or an enhanced annuity. With these products increased pension annuity rates apply because of shorter life expectancies statistically anticipated for those with certain conditions. The more serious the medical condition, the more income the applicant will get.
A lifelong male smoker with Type 2 diabetes could increase his £3,162-a-year pension income to £3,715-a-year, based on a £50,000 pension pot, by buying an enhanced annuity, and that’s an increase of more than 17% on the conventional annuity rate. Those retirees suffering from non-insulin dependent diabetes and occasional angina could boost their annuity income by more than £2,000 a year by going down this route.
Other conditions that qualify for an enhanced annuity and therefore increased annuity rates include cancer, chronic asthma, high blood pressure, kidney failure, multiple sclerosis and stroke, amongst others. But, in spite of the clear financial benefits of purchasing an enhanced annuity, the take-up of these type of products is surprisingly low, and, in 2008, about 7% of annuity sales were for enhanced or impaired products. However, it has been estimated that around one in four retirees could qualify.
Take-up may be low because public awareness of the products isn’t good. Pension companies are not obliged to tell retirees about enhanced annuities. Those who buy an annuity with their existing provider may not be asked about their medical conditions at all, nor given an indication that a higher annuity income may be available if they are in poor health.
Many major insurers will offer enhanced annuities but the products are not widely available across the market and annuity rates differ from provider to provider; a bit like car insurance. Those shopping around might find it difficult to obtain enhanced rates but clearly they should inform the provider of their conditions and ask if any enhanced rates are available. Those who decide to approach an adviser to discuss annuity options should be asked to complete a medical questionnaire before annuity quotes are obtained, and it is important to declare all medical conditions as this could improve income even further.
A lot of people buying an annuity still feel uncomfortable about revealing lifestyle or medical conditions to an adviser, and it is estimated that around 150,000 people could have qualified last year for an enhanced annuity product, but purchased a standard one instead. That’s an awful lot of wasted retirement income.
