Annuities explained Enhanced annuities
With most financial products, you get penalised for being in poor health - through higher premiums or a worse deal.
But with annuities, a medical condition can work in your favour, and could boost the amount of income you receive by as much as 50%. These types of annuities are called enhanced, or impaired, annuities.
This guide explains how enhanced annuities work, and the questions you'll need to answer if you think you might qualify for one.
What is an enhanced annuity?
Enhanced annuities work on the basis that, if you have a medical condition, you'll have a shorter life expectancy than someone in a better state of health.
Annuity companies see you as someone that they'll have to pay for less time, so compensate you by giving you a higher income, essentially using up your pension fund more quickly by giving you access to more money each year.
They pay out more each year than standard annuities, on the assumption that they won’t last as long.
Who qualifies for an enhanced annuity?
According to industry figures, around 20%of all annuities sold as enhanced. But industry sources say that 60% of all annuity applicants could qualify for some degree of enhancement – so it’s always worth checking with providers.
The main conditions that qualify for an enhanced annuity are:
- High blood pressure
- Heart disease
- Kidney failure
Other conditions, such as asthma, high cholesterol, obesity and rheumatoid arthritis also qualify for increased rates, depending on their seriousness.
The uplift you’ll get depends on the seriousness of the condition. For example, multiple heart attacks could get you 31% more income, type 2 diabetes 30% more, asthma 21% more and even being overweight could secure a 15% increase.
Go further: Annuity rates - find out the factors that influence the annuity rate you're offered
Useful link: Annuity calculator from Which? Annuity Advisers - find out what rate you could get
How do I qualify for an enhanced annuity?
Your life expectancy will be assessed based on health and lifestyle conditions, using a 'common quotation form'. This ascertains the seriousness of your impairment.
This is normally completed by your adviser and sent to each potential provider. You may have to provide supporting evidence from your doctor in cases of severe illness, but a medical examination is hardly ever required.
Remember to be completely honest about the degree of your illness. And if your condition deteriorates after the purchase, the amount you receive won’t increase.
You can use the checklist below to make sure you get the best enhanced annuity for you.
- If you have an adviser, they must ask about your health and lifestyle to see whether you're eligible for an enhanced annuity. Make sure you mention this to them.
- There isn't a single 'best' provider for everyone, so insist that your adviser contacts every enhanced annuity provider in the market.
- Be honest. Tell your adviser about your health and lifestyle – hold back, and you could lose out.
- If your partner smokes or is in poor health, you could still get an enhanced joint income – even if you're a fitness fanatic.
- You have to complete only one application form, which your adviser will send to all providers. It's unlikely that you'll have to take a medical but you may need a doctor's report.
- After your adviser has shopped around for enhanced annuities, compare the best quote with the one your pension provider has given you. Then simply pick the one which offers most.
Go further: Buying an annuity - find out the steps you need to take to get the best income in retirement.
Where can I buy an enhanced annuity?
Not all annuity providers offer enhanced annuities, so you should always shop around as many providers as possible if you think you qualify for one.
There are a number of enhanced annuities specialists, such as Just Retirement, MGM Advantage and Partnership.
Additionally, they are provided by mainstream firms such as Aviva, Canada Life, Legal & General, LV=, Prudential and Reliance Mutual.
Need annuity advice?
We believe you should seek independent advice before buying an annuity for your retirement. The Which? Group offers an independent annuity advice service, Which? Annuity Advisers, that looks at every annuity from every active provider in the market. You can also find an independent annuity adviser using Unbiased.co.uk.
Which Ltd is an Introducer Appointed Representative of Which? Financial Services Ltd, which is authorised and regulated by the Financial Conduct Authority. Which? Mortgage Advisers, Which? Insurance Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.