What is an enhanced annuity?
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 substantially boost the amount of income you receive. These types of annuities are called enhanced, or impaired, annuities.
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 for that 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.
How much will I get with an enhanced annuity?
Our table below shows how much extra you can get for an enhanced annuity. There are only six providers left offering enhanced annuities on the open market.
The quotes were obtained using the Money Advice Service annuity calculator and are for a 65-year-old person buying a single-life annuity with an initial pot of £100,000 (with no protection or index-linking).
The enhanced annuity rate is for an overweight smoker who is taking medication for high blood pressure and high cholesterol.
Rates are correct to March 2019.
|Provider||Standard annuity||Enhanced annuity for |
someone with medical issues
|Legal & General||£4,877||£5,239||+7%|
When getting a quote, it’s important you fully disclose health and lifestyle details.
Smokers and people in poor health will qualify for an ‘enhanced annuity’, which will deliver a higher rate as insurers expect to pay out for a shorter period.
Who qualifies for an enhanced annuity?
According to figures released by the industry, around 20% of all annuities are sold as enhanced.
However, 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.
Find out more about the factors that influence the annuity rate you're offered in our guide to annuity rates.
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 financial adviser (if you have one) 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 that offers the most.
Find out about the steps you need to take to get the best income in retirement in our guide to buying an annuity.
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 and Retirement Advantage (now part of Canada Life).
Additionally, they are provided by mainstream firms such as Aviva, Legal & General, Scottish Widows and Hodge Lifetime.