The sale of enhanced annuities has again increased and now make up a third of all annuities sold. These enhanced annuities are bought by retirees that take the trouble to shop around and use the right to the ‘open market option‘.

According to Towers Watson, consumer interest in taking out enhanced annuities – which provide bigger pensions for those with serious medical conditions or with negative lifestyle factors such as weight, smoking and occupation – is set to continue. Enhanced annuities, also known as impaired life annuities, make up over a third of all annuities sold (by premium volume) in the open market in the UK.

These enhanced annuities can quite often get up to 40% plus for those that do take the time to see an independent financial adviser and complete a medical information questionaire. There is a real apathy overall in the retirement options sector with most retirees just accepting the quote from their pension provider. Industry figures say two thirds do not bother to shop around and are therefore missing out on these enhanced annuity rates.

Adam Benson, Independent Financial Adviser at annuity specialist Retirement Solutions said, “I have seen significant increases to retirement income of the clients that have come to me exercising their open market option, as IFAs we know the right questions to ask and can often get 30 to 40% increases in the rates they were offered by the pension provider they saved with. In my opinion not enough people are using the open market option and are therefore missing out on enhanced annuities.”

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As we move into another new month what can we expect for the latest annuity rates for September 2010? Many industry experts are saying there will be further cuts in annuity rates from the providers in the coming months.

Have the best annuity rates September 2010 got any hope of increasing?

It seems unlikely that the best annuity rates September 2010 have any hope of increasing. Therefore it makes shopping around for the latest rates even more important.

The average rate for a male aged 65 purchasing a level without guarantee annuity (based on a £10K purchase price) has decreased by 6.3% since last August, whilst the equivalent female annuity has seen a 5.6% reduction over the past year.

The latest reductions mean that the average male annuity rate has dropped by a massive 45.5% over the last 15 years, whilst female rates haven fallen by 41.8%.
Source; www.moneyfacts.co.uk

What can you do to combat the drop in annuity rates in September 2010

We asked independent financial adviser Adam Benson what retirees can do to combat the drop in annuity rates during September 2010, Adam said, “My very simple piece of advice for those approaching retirement in September is to not accept the first quote given to them by their pension company. Everyone has the right to use the ‘open market option’ which gives you the right to take your pension to another provider to buy your annuity.”

Adam also pointed out that only an independent financial adviser can get you the best annuity rates September 2010 because they have access to the entire market. We at annuitysupermarket.com have to agree with Adam and seeking advice can give you a significant boost in retirement income.

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A retirement calculator can help you find the best annuity rates using your open market option. Using a retirement calculator takes your pension fund and returns the amount of annuity income that the fund would produce if you retired.

The age you retire affects the calculations because as you would expect the payments from a retirement annuity are paid for the rest of your life, therefore the earlier you retire the longer they are likely to be paid out for.

Retirement Calculator for annuity rates 2010

There has been a lot of pressure on annuity rates 2010 and using a retirement calculator today does not mean you will get the same result in a month or longer. This is because annuity rates change all the time, sometimes because of interest rate changes, sometimes as a result of government gilt price changes and sometimes because an annuity provider no longer wishes to remain competitive in a certain sector.

An important feature of the retirement calculator is that it can also show you the difference between standard annuity rates and enhanced/impaired annuity rates. These enhanced annuity rates will show in the results if you tick the box for poor health. The thing to remember about any calculator is that it cannot replace an underwriter, an underwriter can look at the medication you are taking and any other information you have provided and give you the annuity rate.

Use the retirement calculator and then go and seek the advice from an annuity specialist.

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Asset backed annuities are being launched by most of the major annuity providers because of the solvency requirements for guaranteed annuities. Asset backed annuities currently account for around 5% of all annuity sales.

Why would you have an asset backed annuity

With an asset backed annuity there is potential for income increases if the assets backing the income increase in value. On the other hand if the assets fall in value then obviously this can mean that if you do not decrease your income that the remaining funds will keep decreasing and may not sustain the income requirements indefinitely.

Another term for asset backed annuities is invested annuities or investment linked annuities, there is lots of different terminology for annuities.

We at annuitysupermarket.com think that at some point a major provider will launch an asset backed annuity with a guaranteed income option, of course for safety the income may be lower than the starting income for a guaranteed annuity.

As with all financial products you should always seek independent financial advice from an IFA that is a specialist in annuities. There are many IFA firms in the UK but not all specialise in annuities, we therefore recommend that you try and find one that does specialise in annuities and they can then advise you on asset backed annuities.

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When looking for fixed annuity rates you need to consider a few things before you rush in and buy an annuity from your insurance company. Around 40% of retirees qualify for Fixed annuity rates with enhancements for lifestyle or medical conditions.

40% qualify for enhanced fixed annuity rates

Industry figures show that around 40% of retirees could qualify for enhanced fixed annuity rates, not because of serious health issues as you might expect but for lifestyle or minor medical problems.

These minor health problems can be as simple as BMI (Body Mass Index) which to you and me is simply being overweight for our height.

Fixed Annuity Rate options

These are the options that are available with fixed annuity rates:

• Tax Free Cash
• Spouse/Partner Pension
• Frequency of income
• Income paid in advance or in arrears
• Increase in Payment (Escalation)
• Guaranteed payment period

Of course some of these will not matter too much to you.

The first on the list is tax free cash and you can take a maximum of 25% of the value of your pension fund before you buy an annuity. If you have a spouse then you should consider buying a continuing pension for them after you have died. Most insurance companies will allow you to take payment of your income either, monthly, quarterly, half yearly or annually, so you have complete flexibility of when you fixed annuity rates are paid to you.

AnnuitySupermarket always recommend that you seek the help of a specialist annuity service to help you get as much of an enhancement as you possible can. The annuity specialist will research the whole market to find you the best fixed annuity rates.

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I know the feeling, a large envelope from your pension provider full of retirement quotes has just dropped through the letterbox, you didn’t realise it but its only six months to retirement. The pack is full of all the information you need to vest your pension.

But, before you rush to fill in all the forms and send it back, read through it carefully. You will find that somewhere, most probably in the small print it says you can get retirement quotes from the open market and take your pension fund elsewhere to buy them.

Why get retirement quotes elsewhere?

You know if I had a pound for every time someone said that then I would be living the life of Reilly somewhere. What many retirees fail to understand is that just because you saved your pension with the insurance company does not mean you have to take their retirement quotes. You have the right to shop around and you should take it. I know its a pain but it could make a difference of thousands of pounds to your income throughout your retirement years.

Don’t make the mistake 279,000 people each year make, take some time to research the open market and see if you can get better retirement quotes elsewhere. Use the services of an IFA and it will make it even easier.

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Rising infaltion erodes the value of any fixed interest annuity therefore you should consider purchasing index linked annuity rates from the open market. Index linked annuity rates mean your retirement income will keep pace with inflation and retain its buying power.

Where do you get index linked annuities?

Nearly all annuity providers will offer you an index linked annuity, but to be sure you buy the best you need to seek advice from an annuity specialist. The different index linked annuity rates you will be offered from each provider can have a wide range of values.

To give you an example using Assureweb to produce index linked annuity quotes for a 100,000 annuity gave the following results:

• Canada Life (4,200)
• Legal & General (4,150)
• Standard Life (4,055)
• AXA ( 4,046)
• Aviva (4,017)
• Prudential (3,862)
• AEGON Scottish Equitable (3,578)

As you can see there is a significant difference between the top rate and the bottom rate. Which explains why you need to shop around.

Kevin Stelfox, Sales Director at annuity specialist Retirement Solutions, said, “There are huge differences in index linked annuity rates between providers. As specialist annuity advisers we search the whole market to find the best rates for our clients using their own individual circumstances.”

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Many pension products, especially some of the older contracts such as section 226 retirement annuity contracts have built in guaranteed annuity rates (GAR). A guaranteed annuity rate, GAR for short, is a fixed annuity rate, written into your pension contract, at which you can convert your pension fund, irrespective of what open market annuity rates are doing at that time.

What are the advantages of guaranteed annuity rates?

The main attraction of the GAR is that when they were calculated and written into pension contracts annuity rates were considerably higher than they are now, and pension companies of course had no idea that annuity rates would tumble as they have. GARs can produce annuity payments for life that are higher than anything you can get on the open market.

What are the disadvantages of guaranteed annuity rates?

Many of the pension contracts that guaranteed annuity rates are written into were designed to vest at age 65 and therefore the GAR does not apply until that age. Another point to watch out for is that they will normally only provide an annuity on your own life (single life option, so no spouse benefits) and often will not provide for post retirement increases, so if you require an annuity that escalates each year to combat inflation, this may not be possible.

A further point and one that has caught many out is the fact that many of these guaranteed annuity rates were only valid until age 75. This means that you would only get the GAR until age 75 after which you would revert back to the insurance company standard rates, these could be considerably less that the GAR rates.

As always here at annuitysupermarket.com we recommend you seek annuity advice from an independent financial adviser.

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At annuitysupermarket.com we like to keep you updated on the latest information on annuities and annuity rates. We are firm believers that everyone should shop around on the open market to find the very best annuity rates.

The Retirement Partnership managing director Steve Lewis offers a commentary on the latest annuity rates.

Since our last annuity update, annuity rates have continued their slide downwards. Our benchmark annuity (£100,000 purchase, joint life 2/3rds, man 65, women 60, level payments) was paying £ 6,080 per annum gross at the end of March but this is now down to £ 5,749 per annum a fall of over 5 per cent. During the same period the yield on long dated gilts fell from 4.48 per cent to 3.87 per cent. This is roughly in line with our rule of thumb which says that for every 100 basis points fall in yields, a level annuity will reduce by 10 per cent. Over this period yields have fallen by 60 basis points and the annuity income by 5.4 per cent.

Kevin Stelfox, Sales Director at annuity specialist Retirement Solutions said, “This kind of information is extremely useful, it does bring home the message that it is so important to shop around with your pension fund and not just buy your annuity from the pension provider you saved with. Everyone has the right to the open market option, but shockingly on a third of people use it, which is disappointing.”

Our own research at annuitysupermarket.com is that the difference between the best and worst annuity rates can be quite alarming, an example from today using research from assureweb, a 65 year old male, using a pension fund of £50,000 after taking tax-free cash, with a level annuity with no options and paid in advance would get £3,422 from the best provider Legal & General, but only £2,988 from the worst of eight providers, that amounts to 14% difference in income. This proves how important it is to shop around to find the best annuity rates.

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An enhanced, or impaired, annuity will pay a higher income to people with health problems or where their lifestyle is likely to reduce their life expectancy. Here at annuitysupermarket.com we are always striving to get the best annuity rates for our clients. One question we are always being asked is, “What is the difference between an enhanced annuity and impaired annuity?”

Enhanced annuities

Enhanced annuities are available for lifestyle factors such as smoking or being overweight, even your postcode can qualify for an enhanced annuity rate. Taking prescribed medication for miWhat you need to remember is you do not need to be ill to qualify for enahnced annuity rates. Here are a few quick reminders of what might qualify:

• Smoking – 10 cigarettes a day for the last 10 years (or the equivalent cigars or tobacco)
• Obesity, high cholesterol, hypertension
• High blood pressure and diabetes mellitus

Impaired Annuities

Impaired annuities are those that use a medical condition that may significantly reduced life expectancy. A medical report may be required from your doctor. The following medical conditions will be considered:

• Heart attacks, heart surgery or angina
• Life threatening cancers
• Chronic asthma
• Major organ diseases e.g. liver or kidney
• Other life threatening illnesses such as Parkinson’s, multiple sclerosis and strokes

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