Last week we outlined how annuities have been making something of a comeback, albeit from a low base.
Rates jumped around 20 per cent in 2022.
This Is Money cites how with a pot of £100,000, a healthy 65-year-old can buy a single life annuity, with no inflation protection, generating an income of more than £6,000 a year.
However, what if you are not healthy and, indeed, are perhaps suffering significant ill health?
Perversely, you can potentially get an even better return through what are termed enhanced annuities.
According to Financial Conduct Authority retirement data, about a third of annuities are bought on enhanced terms.
However, industry sources say that 60 per cent of all annuity applicants could qualify for some degree of enhancement – so, it’s always worth checking with providers.
Consumer champion Which states: “With most financial products, you get penalised for being in poor health through higher premiums or a worse deal. But with annuities, a medical condition can work in your favour and could substantially boost the amount of income you receive.
“Enhanced annuities work on the basis that, if you have a medical condition, you’ll have a shorter life expectancy than someone in a better state of health. Annuity companies see you as someone that they will have to pay for less time so compensate for that by giving you a higher income – essentially using up your pension fund more quickly by giving you access to more money each year.”
The campaign group recently highlighted quotes from the main players – Scottish Widows, Aviva, Canada Life, Legal & General and Just – obtaining these using the Money Advice Service annuity calculator, for another 65-year-old buying a single-life annuity with an initial pot of £100,000 (no protection or index-linking), the difference this time it being an overweight smoker taking medication for high blood pressure and high cholesterol.
Aviva came out the most generous – £7,231 standard annuity, £8,832 enhanced, a difference of 12 per cent. Just had the biggest percentage jump of 15 per cent, £6,509 to £7,460.
Many medical conditions can trigger enhanced pension annuity rates – diabetes, asthma, heart disease, high blood pressure, cancer, kidney failure, smoking and obesity.
Some companies also offer higher annuity rates to people who have worked in certain jobs. For example, those involving a lot of manual labour, or who live in certain areas of the country that have lower life expectancies.
Being overweight could boost your income by 10-15 per cent, while if you’ve had several heart attacks, you could get an extra 30 per cent, asserts Legal & General.
It noted: “Later life health problems can make enjoying your well-deserved retirement years harder. Those problems can hit your finances too, pushing up the cost of day-to-day living and creating new care and support costs. That makes the guaranteed income a pension annuity offers a very attractive choice.
“With annuities, the worse your health, the more money you may receive. If you have a particular condition, we recommend shopping around to find the best enhanced annuity rate for you.”
How, then, to get started?
Which explains: “Your life expectancy will be assessed based on health and lifestyle conditions, using a ‘common quotation form’. This is normally completed by your financial adviser (if you have one) and sent to each potential provider. You may have to produce supporting evidence from your doctor in cases of severe illness, but a medical examination is hardly ever required.”
If your life expectancy is less than two years, you probably won’t be able to get an annuity. You may be able to take your pension pot tax-free instead.