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.

To understand why enhanced annuities are available, one must first understand how an annuity works. Many people save money for the retirement through what are called money purchase schemes, such as Stakeholder Pensions, Personal Pension Plans, and occupational pension plans. With money purchase plans, when a person retires, they cash in their investment and purchase an annuity.

Annuities are purchased from life assurance companies, and they offer a guaranteed lifetime income, in exchange for the retired person’s pension pot. Annuities are a type of insurance policy, offering a guarantee that the pension will continue to be paid no matter how long the person lives after the date of their retirement.

When a pensioner survives for a long time after their retirement date, they will end up receiving more money (as their pension income), than they paid for the annuity. However other pensioners will not live so long, and overall gains and losses for the life assurance company will tend to balance out.

The annuity rate offered by the life assurance company will depend on many factors, including the person’s life expectancy. For example, women tend to live longer than men on average, so life assurance companies will offer lower annuity rates to women.

The market for annuities is competitive, and if the life company has any reason to believe that a particular prospective customer may have less life expectancy than other customers, then they will be able to offer an enhanced annuity rate to that person. Those who may be eligible for these better rates include people with medical conditions, or lifestyle conditions (such as a regular smoking habit), which may on average shorten their lifespan.

Enhanced annuities may be available to people who suffer from a wide variety of illnesses, including cancer, heart, lung, liver, and kidney diseases, strokes and diabetes. Even if a person is in fine health at the moment, lifestyle conditions may be taken into account, making them eligible for a better rate.

Lifestyle conditions that might be taken into account include being a regular smoker, being overweight or obese, and having high blood pressure or cholesterol levels. There can also be other conditions which may also be considered on a person by person basis.

Sometimes even a fairly mild conditions can have an effect on a person’s life expectancy, allowing them to qualify for an enhanced annuity. In one example, which was published by a major life company, a 65-year-old lady suffered from raised cholesterol levels and high blood pressure. She qualified for a 7% enhancement to her annuity rate. A more seriously unwell person, a 65-year-old man with chronic pulmonary disease and a smoking habit, was offered an increase of 20% to his retirement income. Normally the life company will obtain a medical report from the person’s GP before confirming the annuity offer.

We’ve talking before on the importance of shopping around and how you should compare annuities before making a purchase. But what we want to focus on now, is enhanced annuities.

What Are Enhanced Annuities?

Enhanced annuities are, basically, annuities for those with certain condition or meeting certain criteria. They offer higher rates than standard annuities. This is because the criteria that people have to meet in order to be eligible for enhanced annuities, are criteria that would be expected to hinder your life expectancy. As annuity rates are calculated based on life expectancy, this means higher monthly payments.

What Are the Eligibility Criteria for Enhanced Annuity Rates?

The most common eligibility criteria for enhanced rates include:-

Smokers

If you have smoked at least ten cigarettes per day or more for ten years or more, you’re likely to be eligible for enhanced annuity rates. This Is because smoking is related to a large number of life threatening illnesses.

Unhealthy BMI

If your body mass index puts you in an unhealthy weight category, you could also be eligible for enhanced annuity rates. This is based on the fact that being of an unhealthy weight is also linked to  a number of health conditions.

Pre-Existing Medical Conditions

There are a whole host of pre-existing medical conditions that could mean you qualify for enhanced annuity rates. These include chronic chest problems, heart disease, high blood pressure and a whole host of others. Even if you don’t consider your health condition to be one that hinders your life, it’s still worth finding out whether you could qualify for enhanced rates, as this could mean a significantly higher annuity income!

How Do I Apply for Enhanced Annuity Rates?

We can help! You can speak to one of our professional advisors who can ascertain whether you might qualify. We’ll then search the market to find the best options for you.

You will have to complete a medical questionnaire to apply for enhanced annuity rates but our experts can advise you if you have any problems.

Complete our secure enquiry form to the right of this page or call us on 0800 644 6021.

What lifestyle factors qualify for enhanced annuities

These are some of the lifestyle factors that qualify for enhanced annuities. Depending on the severity of them will determine the enhancement of annuity rates you will get. These are only a few of the many that can qualify.

• Height and Weight
• Postcode where you live in the country
• The amount of alcohol that you drink and what type of alcohol you drink
• Smoking and how many each day, what you smoke (cigarettes, tobacco or pipe)  and how long you have smoked for to qualify for smoker annuity rates.

Annuity providers have many years of data to understand what lifestyle issues can affect life expectancy. It is life expectancy that determines the annuity rate you get. If an annuity provider has to pay out the annuity for what they believe will be a shorter time than average then they will give a higher annuity rate.

There is much evidence in the public domain that indicate that smoking and alcohol in particular reduce life expectancy.

How do you find out if you qualify for Enhanced Annuities?

Ideally you need to consult with an independent annuity specialist. The specialist will complete a medical information form that asks questions about the medication you may be taking, the number of units of alcohol that you consume, your height and weight and also if you have been hospitalised for any medical conditions. The information collected will allow the annuity specialist to check if you qualify for enhanced annuities. The difference to your income could be quite significant if you do qualify for enhanced annuities.

Do I have to go for a medical?

The answer to this question is normally ‘No’ , however, many of the annuity providers will write to your doctor or consultant to verify the information that you provided in the medical information form you completed to check if you qualify for enhanced annuities.

How long does it all take?

The majority of the annuity providers process your application immediately, they will do any checks they require while the application is being processed so there is no need to worry about a delay in your retirement income. Of course the difference in retirement income could be very significant if you do qualify for enhanced annuities so it would be worth the wait.

Spot checks and in some cases doctors’ reports to verify the smoking information provided in the application.

For advice and quotes contact Annuity Supermarket on 0800 043 6701

• Do you regularly smoke cigarettes?
• Do you take regular medication?
• Have you ever been hospitalised for a medical conditions

If you have answered yes to any of the above questions, we will check if you qualify for special annuity rates.

Estimated up to 40% qualify for enhanced annuity rates

Examples of some of the conditions that may qualify

• cancer
• heart conditions
• diabetes
• asthma
• obesity
• high blood pressure
• organ transplants
• stroke
• liver disease
• alzheimer’s
• chronic lung disease
• kidney disease
• multiple sclerosis
• Parkinson’s Disease
• or a disease of the central nervous system.