When poor health can help boost your pension income

It cannot be said often enough but if you are coming up to retirement and taking out an annuity, it pays to shop around.  Consultants, Towers Watson, point out that 12% of all annuities purchased are ‘enhanced’ because the purchaser has a health condition which shortens their life expectancy.  This means they qualify for higher annuity payments which can make a significant difference to their income. 

Now, Just Retirement, which specialises in enhanced annuities, believes that a much larger number could qualify for ‘impaired life’ annuities that provide a significant boost to income throughout retirement.  Just Retirement claims that between 55% and 65% of those retiring might have relevant health conditions that qualify them for an enhanced or impaired life annuity.

‘The General Lifestyle Survey, for those reporting a long-standing illness suggests that there are many people around the age of retirement who should be able to increase their income simply by completing a medical questionnaire and shopping around in the annuity market,’ commented Nigel Barlow, head of research for Just Retirement.  ‘According to the survey, 56% of people aged between 65 and 74 report a long-standing illness and 33% report a limiting long-standing illness.’

‘The sophistication of underwriting by enhanced annuity providers has improved over the past six or seven years to take into account more combinations and lower levels of conditions. Many of these people might now qualify if only they knew about it,’ he said.

Because the annuity rate you can get with an impaired life product depends very much on your health, applicants need to consult a good annuity broker who will shop around and get the best rates.  But as a rough guide, someone with a serious health problem such as heart disease might get up to 30% more in annual income than a person in good health.

Current ‘best buys’ for level annuities for those in good health for a purchase of £100,000 are £6,641 at Canada Life or a male aged 65 or £6,302, also from Canada Life for a female aged 65.