Impaired life annuity and enhanced annuity sales continue to rise. UK sales of these types of annuities, which offer higher annuity incomes to people who suffer from ill health and to smokers, those likely to die prematurely, rose around 25% last year in a sign of their increasing popularity among retirees, according to a recent study. Sales of these products, known as impaired life annuities and enhanced annuities, rose to around £1.79 billion ($2.72 billion) last year, according to leading consultants Towers Watson.

These enhanced annuity products now account for about 17% of the UK pension annuity market, Towers Watson said, up from about 7.8% in 2001. 2009 was another record year for these enhanced annuity sales and means more consumers are benefiting from higher annuity incomes, said Towers Watson consultant Andy Sanders. Enhanced annuities were introduced into the UK in 1995, and are offered by companies including Aviva (was Norwich Union), Axa , Canada Life, Legal & General and also Prudential. Annuities offer retired individuals a fixed income for the rest of their lives in return for a lump sum paid on their retirement.

More people are taking UK enhanced annuity rates, with significant growth in the enhanced annuity market. Aston Goodey, Director, MGM Advantage comments that enhanced annuities have experienced a strong growth in their sales in recent years and it’s not surprising to learn that they now account for almost one in five of all pension annuities sold. He added that the products offer fantastic value, paying out around 22% more annuity income each year compared against standard annuities. Over the course of retirement a man eligible for an enhanced annuity with a £50,000 pension fund will find himself over £12,500 better off.

Goodey continues, stating that the awareness of enhanced annuities is on the up and those approaching retirement increasingly realise that these products are open to people with relatively minor health conditions, perhaps such as high blood pressure. However, too many people still take the first annuity deal offered to them and fail to shop around properly or investigate whether they might be eligible for an enhanced annuity. Once you have converted your pension fund into an annuity there is no going back, which makes this one of the biggest financial decisions you’ll ever make. Anyone on the verge of their retirement needs to consider their options very carefully to ensure they maximise their pension fund, and therefore they should seek professional advice.

Enhanced annuity and impaired life annuity entitlement does vary a little. The medical conditions that might entitle you to an impaired life annuity include heart disease, stroke, angina, cancer (various), chronic bronchitis and long-standing diabetes. Some insurance companies (the annuity providers) recognise hypertension. The acid test is the degree by which your medical condition is likely to reduce your life expectancy. Most people seeking impaired life annuities have to get their doctor to complete a medical questionnaire. Some annuity providers have a standard form. Simpler lifestyle annuities can be arranged on the basis of a box-ticking medical type form which you complete. These annuities offer better annuity rates if you smoke more than 10 cigarettes a day or are seriously overweight, defined as being 30% overweight for your height, age and gender. Manual workers might also qualify for higher annuity rates. 

Impaired life annuities are best suited to those people with more than a year to live. Someone looking at less than a year to live would do better to seek a special dispensation from the Revenue allowing them unlimited access to their pension fund, tax-free. Here’s an example; Mrs G, 60, of Eastbourne, suffers from a malignant liver tumour and long-standing hypertension, and she had two personal pensions. An annuity specialist was able to combine these and find her enhanced annuity rates 20% higher than those available from her own pension conpanies, resulting in her being thousands of pounds better off in her retirement as a result of shopping around.

Impaired life annuity rates can make quite a difference to your annuity income. People in poor health, or with unhealthy lifestyles, such as smoking or being overweight, should seek out specialist advice, otherwise they will be quoted a standard annuity rate based on normal life expectancy for a person of their age and gender and not the enhanced annuity rates from impaired lives or lifestyle annuities. Impaired life annuities pay much higher annuity rates to people with certain medical conditions because of their likely shorter lifespan. Providers include Just Retirement, MGM Advantage, LV=, and Partnership, as well as some well known insurers.

Most of these companies sell their enhanced annuities through independent financial advisers (IFAs). Some experts rightly claim that it’s a shame more people don’t use the open market option, which allows them to shop around with their pension fund to find the best annuity rates available. Some retirees could end up with an improvement in rates of up to 30%, because of their lifestyle, occupation or their ill health. Here’s details of an extreme case transacted a few years ago; a 75-year-old man with lung cancer was quoted a standard annual annuity income of just over £21,000 by his existing pension provider. A specialist enhanced annuity provider was able to boost this by about 80 per cent to nearly £38,500.

How do you get an enhanced annuity? When annuity providers (insurers) provide quotations for their current pension annuity rates, one of their primary tasks is to calculate life expectancy. They will include various factors in this calculation including your health, lifestyle, smoking habits, previous occupation, and even your postcode will count in some cases. Your smoking habits and your medical condition(s), both past and present, can all affect to a degree your life expectancy. Some annuity providers take these factors into account when setting their annuity rates. In some cases, this can mean much higher retirement income levels than those payable from a conventional annuity.

It is important to note that any entitlement to a higher pension annuity rate will be based on a possible reduction in your anticipated life expectancy, and not related at all to your quality of life. That is, you may qualify for a higher pension annuity income without necessarily having any impairment to what might be called normal living. For all these enhanced annuities, each case is considered on its own merits. If you have any queries regarding an enhanced annuity please feel free to contact one of our specialist advisers on 0800 169 1256.