It’s important to check if you’re entitled to an enhanced annuity
Millions of people may be missing out on valuable income in retirement because they have no idea their health or lifestyle makes them eligible for extra pension. Almost three-quarters of people over the age of 55 have never heard of an “enhanced annuity”, according to a survey carried out by fund supermarket Hargreaves Lansdown (HL).
Annuities enable savers to convert their pension funds into regular income, payable by an insurance company and guaranteed for the rest of their lives. The annuity rate you get is set at the moment you purchase the plan – and then fixed for life – so it is crucial to get the best possible deal.
Standard annuity rates move up and down over time and are primarily linked to yields on government bonds and average life expectancies. Crucially, savers who have reason to think their life expectancy might be shorter than the average can often purchase an enhanced rate because the insurer does not expect to have to pay the income for so long.
This is not unusual: a remarkably wide number of people qualify for enhanced annuity income, including smokers, people who are overweight, those with a history of serious medical conditions, and even those with common health problems such as high blood pressure.
In addition, some insurers offer enhanced rates to people who worked in a certain occupation: where they might have had exposure to hazardous materials, for example. In some cases, savers may even qualify for extra income simply because of where they live, since insurers have access to statistics that show average life expectancy rates by postcode; these vary significantly across the UK. As many as 56% of the savers for whom HL arranges annuities qualify for some form of enhanced rate. The typical uplift on the standard quote is 14% – in other words,14% extra pension every year for life. This is why it is worrying that such large numbers of people may be missing out on this money. Savers who simply buy the annuity income on offer from their pension provider may miss out; if they don’t take professional advice, even those who shop around for a better income from rival providers may not realise they’re eligible for the extra cash.
Financial regulators have attempted to encourage more people to take independent advice before buying an annuity, but the numbers doing so remain stubbornly low. Last year, just 28% of annuity sales were advised, according to the Financial Conduct Authority.