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Do you qualify for an enhanced annuity?

Do you qualify for an enhanced annuity?

Category: Annuities

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

If you're approaching retirement, you need to know how to secure an income throughout your post-work years. It goes without saying that you'll want to be as comfortable as possible, and hopefully you'll have built up a healthy pension pot that can work with the state pension to give you the level of income you desire.

For some people, annuities will still be the go-to way to turn that pension pot into a usable income – annuities offer a guaranteed income for the rest of your life, something that no other solution can offer – and the news that annuity rates have started to rise will come as welcome news to those seeking the highest level of income possible. But what if you could improve on that? Well, you could – if you qualify for an enhanced annuity.

Common conditions can make a big difference

Enhanced annuities offer a higher level of income to retirees who suffer from a range of health or lifestyle conditions, but these don't need to be too serious. In fact, around 65% of people could actually be eligible for an enhanced annuity, with many common conditions being on the list.

Research from Partnership has revealed that the most common condition people declare when taking out an enhanced annuity is high blood pressure, followed by obesity, diabetes and high cholesterol. These conditions aren't necessarily life threatening and are often easily managed with medication, but those who suffer from them could receive thousands of pounds more over a 20-year retirement.

Let's take a look at the figures. A healthy person with a pension pot of £100,000 (which has been used to purchase a single-life level term annuity) could achieve a typical income of £5,400 per year, or £107,998 over a 20-year period. Conversely, those with high blood pressure could achieve an annual income of £5,709 per year or £114,182 during the course of their retirement, a full £6,185 more.

However, smokers could receive the biggest uplift in annuity income, with a typical smoker receiving an average of £6,448 per year, or £128,000 over 20 years – that's £20,954 more than a healthy person. Of course, this isn't to say that you should start smoking to get a higher income – insurers check these things, and the lower life expectancy means you may not be able to enjoy that extra income for too long – but for those who already smoke or have any other applicable condition, it's definitely worth seeing if you could qualify for an enhanced annuity.

Barriers to enhancement

Unfortunately, even though so many people could potentially benefit from the higher income of an enhanced annuity, Partnership previously found that many are missing out due to the perceived complexity of sourcing a quote and a reluctance to divulge private information.

The tide could be starting to turn, however, with 64% of 40 to 70-year-olds saying they'd be more than happy to disclose a wide range of personal details if it helped them gain a better understanding of how long their retirement might be. But, of those who were reluctant, 17% said they wouldn't be keen on providing medical history, 16% didn't want to share their salary and 15% felt uncomfortable divulging their hobbies and social relationships, while mental health (15%) and family medical history (14%) were other topics people were reluctant to discuss.

However, if you want to get the highest income possible, don't let shyness get in the way. Once you've purchased your annuity it can't be changed at a later date (unless annuity selling comes into play, but this is still under consultation), so the decision you make will determine the income you receive for the rest of your life. Plus, everything you discuss with your adviser and pension provider will be wholly confidential, so you've got nothing to lose – except a higher income if you don't fully disclose your details.

Mark Stopard of Partnership commented: "An annuity remains one of the best ways in which people can secure [an income], so if people do want to take out one of these products, they deserve to get the highest income possible. Many of the most common conditions that we underwrite for can be relatively minor and managed with medication but can make a real difference to the amount of income someone receives. Shopping around and looking at whether they are eligible for an enhanced annuity will ensure that they get a better deal."

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.