The health of your annuity

Posted on: 12 September 2013 by Chris Rowe

Chris Rowe explains how poor health in retirement could qualify for greater income on your annuity.

Annuity ratesOkay, so we’re not saying that you should make yourself ill, or even fake it, in order to receive a bigger payout, but if you’ve had any medical conditions and you’re about to retire then it’s probably worth mentioning them when you meet your independent financial adviser.

Let me explain.

As many people who are about to retire will be aware the annuity market has been suffering over the last three years. They’ve not enjoyed the best of health.

Over that time rates have fallen by 15% and reached an historic low and were left bed-bound in 2012.

As a result someone would need a pension pot worth 24% more today to generate the same annuity income as someone who retired three years ago. The thought of this has left a great deal of people spluttering.

Despite rate rises of 5.6% since December rates still need to improve by at least 6% to make any delay in purchasing a retirement income worthwhile according to reports.

So what are the reasons for the low returns?

Gilt yields from Government bonds are poor and people enjoying good health and living longer are both having an impact. The result of this is that people are either having to take less money than they originally anticipated, or hang on for a bit longer before retiring.

The Association of British Insurers (ABI) is also attempting to increase transparency of providers’ annuity rates by publishing example rates from members to help savers shop. However, the rates are a month old, which they have to be to avoid breaking competition rules, and the information doesn’t include the whole market, only ABI members. And, not all of them have taken part.

One way around low rates is to consider income draw down where you leave the investment in place and take what you need as you need it. However, this still offers a limited return, as it’s linked to gilt yields, but it does give you the flexibility to change to an annuity in future.

As well as being comfortable money-wise in retirement, most people we know wish for good health in which to enjoy their remaining time on the planet. But for those that have suffered from poor health there is a chance to have a bit more cash through purchasing an impaired or enhanced annuity. Providers can be a little bit quiet about these type of annuities, understandably so, but if you qualify you can receive up to 20% more income than a standard annuity.

Generally people who qualify for an impaired or enhanced annuity have conditions that are deemed to affect your life expectancy. This can be for smoking; taking medication for high blood pressure or high cholesterol; previous treatment for heart conditions; most conditions where ongoing medication is required to either treat or control the condition; previous cancer sufferers; and stroke victims.

A condition like Asthma where you are at the level of just needing to carry an inhaler around with you would not usually qualify, but if you are someone who suffers from regular attacks and requires frequent nebuliser sessions you may well be eligible for the extra income.

Having a serious operation may also be a factor in whether you can get additional help. We had one client who’d had a back operation, which was not classed as having a life decreasing affect. But, they were able to qualify due to being a smoker.

Obviously we want everyone to enjoy their retirement in good health, but if you feel like you may be able to qualify then mention it on your next appointment and it may give you a 20% boost.

Take five minutes to call Chris Rowe at Worldwide Financial Planning now to book an appointment to see if your finances are in good health. Telephone 01872 222422 or e-mail or take a look at our website

The value of shares and investments can go down as well as up.

Information given is for general guidance only, and specific advice should be taken before acting on any suggestions made. All information is based on our understanding of current tax practices, which are subject to change. Your home may be repossessed if you do not keep up repayments on your mortgage.

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