Our retiring House of Commons leader, Speaker Martin’s, premature retirement at the age of 63 will be really amply cushioned by us good old taxpayers with a pension fund worth just under £2.1m. That’s  how much experts calculate that ordinary people would have to save to buy a pension annuity – or guaranteed income for life – of around £71,000 a year, or 50% of the Speaker’s salary.

This is the figure given in official documents dated April, 2008, but the current figures aren’t readily available, apparently. What we do know for sure is that the part of the Speaker’s pension entitlement that exceeds other MPs’ retirement funds requires him to pay no contributions. And, the Speaker would be entitled to receive 50% of his salary as pension, regardless of how long he was in the post. Even by the (interesting) standards of the House of Commons, this is a remarkably generous pension scheme.

Britain’s private sector retirement funds used to exceed all those in the rest of Europe in 1997 before the then Chancellor Gordon Brown used his first budget to impose £5 billion a year tax on these funds. Since then, most traditional final salary arrangements, which MPs continue to enjoy, have been closed to most workers in the private sector. Thank you, Gordon.

The average pension fund savers use to buy an annuity today is about £47,000. That’s less than a fortieth of the Speaker’s pension fund and, with full index-linking for a man of his age, would generate an annual income of around £1,673 a year before tax, at current annuity rates.

Speaker Martin’s fabulous pension fund reminds us that MPs might have been more careful to preserve our pension arrangements, and less keen to tax them, had their own comfort in old age depended on it, and they had to go out and get annuity quotes like the rest of us at retirement.

Pension annuity rates have stabilised somewhat but shopping around for the best annuity rates is still essential. In May the rates for level annuities did settle down after after several months of falling rates, and the top rate available from Norwich Union (soon to be Aviva) was unchanged at £6440 per annum for a male, aged 60, with a £100,000 fund.

Annuity rates for females also held firm, with the top rate from Norwich Union (Aviva) unchanged for the month at £6100 per annum for a 60 year old with a fund of £100,000. On the other hand, index linked rates continue to slide somewhat with Canada Life cutting its rate by £111 to £3769 per annum in May for a male, aged 60, with a £100,000 fund. The best inflation linked annuity income available fell by more than £150 per year in just two months.

Annuity rates for smokers on a level basis also stabilised in May with the top rate from Liverpool Victoria (LV=) remaining unchanged at £7506 per annum for the month for a male aged 60, with a £100,000 fund.

Commenting on this one industry experts said that the worst of the double whammy of falling interest rates and quantitative easing (QE) seem to have worked their way through the system of annuity quotes and the sharp falls in level annuity income seen in past months appear to have slowed which is good news for those nearing retirement. He added that as annuity rates have fallen it is even more important that people shop around for the best possible rates, and, in his experience, people could improve their retirement income by around 18% simply by using the open market option to get the best possible annuity rate.

Considering an individual over a thirty year retirement, this could mean up to £35,000 or more extra annuity income for a person retiring with a pension fund of £100,000. Well worth shopping around for, I would suggest!

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.

Miss S. and Mr. A. don’t actually know each other and live in totally different parts of the country, but they both enjoy bigger annuity incomes than they anticipated simply because of their addresses, so here is another postcode annuity example.

She comes from a village in Hampshire, and bought a pension annuity that is worth nearly 5% more to her because her SO16 postcode is rated by insurance company Legal & General as ‘unhealthy’. He lives in Greater Manchester, and he enjoyed a 5.6% boost to his annual pension annuity with Norwich Union for the same reason.

Annuity rates are based on life expectancy, but these days many other factors are taken into account, all to provide indicators as to who are likely to live the longest. Those who do live the longest will receive a smaller income per pound of their pension pot. On the other hand, those who might live for a shorter period of time will receive a higher annual annuity income. Why? Because it will be paid out for a shorter period of time.

Over the past couple of years, Norwich Union, Prudential and L&G have started using postcode data to price pension annuities, and it makes no difference whether you have lived in that particular area all your life or if you have recently moved from an address with a different postcode health profile. Commenting on this, Tim Gosden of L&G stated that postcodes are a quick and ready indicator of consumer average wealth, lifestyle and health. If you are not going to ask complex medical questions, postcodes are a way in which you can give more accurate pension annuity rates to some people.

So, when you are checking out annuity quotes for the best annuity rates, it could be worth your while disclosing your postcode. It could boost your income in retirement by a few percentage points.

One sector of our UK economy that continues to grow is that of the enhanced annuity, according to research by leading consultants Watson Wyatt. Their data shows that sales of enhanced annuities in the UK in the first quarter of this year were £443 million, which is 9.3% higher than the previous quarter.

According to Watson Wyatt, this dramatic growth in the number of retirees taking out an enhanced annuity product, which provide bigger pension incomes for those with people with serious (or mild) medical conditions or with negative lifestyle factors such as being overweight, smoking, occupation and geographical location, is most likely to continue. Looking at the first quarter’s sales on an annualised basis would suggest sales of close to £1.8 bn this year, up from the record sales last year of £1.4 bn, commented Andy Sanders, their senior consultant.

Enhanced annuities, also known as impaired life annuities, make up roughly 25% of all annuities sold in the open market in the UK currently, and Watson Wyatt expects this proportion to continue to rise. The conventional ‘pooling of risk’ approach we have known in the pension annuity market is increasingly being challenged by the application of full or partial individual underwriting, whether based on health or postcode as a proxy for the expectations of longevity.

Andy Sanders added that these forms of segmentation are good news for retirees as they provide more options with which to maximise their annuity income from pension savings. However, it does mean a more complex marketing and administrative environment for product providers to remain competitively priced and for financial advisers to identify the most appropriate annuity product with the best annuity rates for their clients. He further added that the average enhanced annuity premium last year was just over £52,000.

Just so you know, the first enhanced annuity or impaired life annuity products were first introduced in the UK in 1995 and they have rapidly gained a substantial market share of all pension annuities sold. These include: annuities enhanced for serious or mild medical conditions; annuities for those who smoke; and annuities enhanced as a result of the many lifestyle factors such as weight, occupation or even geographical location. Enhanced annuities are currently available from eleven providers.