Ill health and your pension annuity

Are you prepared for ill health? What if you nearly die? What if you suffer a long-term disability or illness? You could qualify for an enhanced annuity or an impaired life annuity…both offer higher annuity rates. But if you’re ill later on in retirement you can’t qualify if you have locked into a lifetime annuity today.

Isn’t that a cheery thought. Trying to plan in case you are ill in the future. I know it’s a bleak thing to think about when you should be enjoying your retirement but the important thing is that you consider all the possibilities before you commit your hard-saved pension fund. Look at the statistics: one in 10 people aged 65 today will live to be 100 years old but according to government statistics an average 65-year-old male is likely to have just under 10 years of what they call “disability-free” life expectancy – that is, expected years of life free from limiting long-standing illness or disability. Even if you are relatively fit and healthy when you retire, your health could deteriorate later on.

Maybe you should hold fire on buying a lifetime annuity, at least for now, unless you know you aren’t going to fall ill. Maybe you should keep your options open for longer. Under current legislation you have to buy a lifetime annuity at age 75. Plus your health might not deteriorate and even if it does, lifetime annuity rates could be lower in the future than they are today so there are no guarantees that you’ll end up better off.

What if you die before age 75? You may wish to consider a joint life fixed-term annuity. This would ensure that if you passed away before the end of the term then your wife would continue to receive a pension for the balance of the term. At the end of the term, a guaranteed lump sum that would have been available to you for reinvestment would be available to your wife for reinvestment into a pension annuity or another appropriate pension product.

You could also consider adding something called value protection. This pays back a lump sum to your estate, equal to the initial investment less the gross payments you have taken from it and a tax charge, currently 35%.

There is a cost for this, but there are companies that offer this type of benefit to people, regardless of their current state of health, at very reasonable rates. 

This entry was posted on Friday, August 29th, 2008 at 8:16 am and is filed under Annuity rates, Ill health, enhanced annuity. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.