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.