Not declaring your full medical history could cost you between 10% and 20% of your retirement income, new data has shown. Purchasing a pension annuity is one of the most important decisions that we make financially, but a lot of people are missing out of thousands of pounds worth of retirement income by not revealing the correct information.
The majority of retirees use the pension that they have accrued over the years to buy an annuity, which will then guarantee an income for the rest of their retirement. The annuity rates have been at rock bottom for the past few years, yet most people could be getting better rates by telling their providers about all of their health issues, no matter how small, that could potentially shorten their life expectancy
Currently only 1 in 5 people buy an ‘impaired annuity’ which is a policy that due to health problems will give the client a larger retirement income. A new trial has shown that 7 in 10 people approaching retirement age will actually quality for an impaired annuity over a regular annuity. Most individuals are not aware that declaring mild and non-serious conditions could increase their income considerably.
Just Retirement recently got together with many Independent Financial Advisers (IFAs) to trial a scheme called Tele-underwriting. The purpose of the trial was to get clients to talk to a medical professional before they saw an IFA. The results of this pilot showed that customers often qualified for an annuity increase of between 20% and 25%
This rise in income can be quite significant. For instance, a standard annuity bought with a pension fund of £50,000 would give you £3,100 a year. However, should you declare that you have been diagnosed with high blood pressure or cholesterol problems you could well qualify for an extra £350 per year.
Heavy drinkers and smokers would also qualify for more income. A smoker would typically get an extra £660 per annum, which if you lived for 20 years into your retirement would equate to over £13,000.
It’s vitally important that all medical issues are raised at the point of buying your annuity, as they cannot be changed further down the line.
Many pensioners are confused about what information to give and many are under the impression that a poor medical history will work against them and they will end up with less retirement income, when the opposite is true.
When financial giants Aviva surveyed their customers that found that only half of them understood that any medical information they supplied would affect their lifetime income. Of these clients a further 22% were of the opinion that their income would decrease due to a medical complaint.
It seems that pensioners are often accepting the default option made available to them without fully understanding the implications and what they could actually qualify for. This has been noted more with those with company pensions, where only 1 in 20 pensioners are offered an enhanced annuity.
