Enhanced Annuity


Last updated: 20/03/2014


What Is An Enhanced Annuity?


An Enhanced Annuity is basically the same as a conventional, Lifetime Annuity however, people who qualify for Enhanced Annuities receive a higher income for life than those who do not qualify. The income that they receive is therefore ‘enhanced’ when compared to that payable by a conventional, Lifetime Annuity paying standard annuity rates.

It is thought that over 70% of people retiring are likely to qualify for an Enhanced Annuity income but that only around 10% of annuity buyers currently buy an Enhanced Annuity at retirement.

There are numerous reasons why retirees are seemingly choosing to ignore a potential life-long boost in their retirement income of up to 40%. Visit: Open Market Option for more details.

ARTICLE SECTIONS:

HOW CAN RETIREES RECEIVE AN ENHANCED ANNUITY INCOME?
THE EXTRA FACTORS CONSIDERED
STATE OF HEALTH, CURRENT ILLNESSES, MEDICATION & MEDICAL HISTORY
LIST OF QUALIFYING MEDICAL CONDITIONS AND ILLNESSES
LIFESTYLE ISSUES
SMOKING / USE OF TOBACCO PRODUCTS
YOUR POSTCODE
ENHANCED ANNUITY RATES FOR YOUR SPOUSE / CIVIL PARTNER
FINDING / BUYING THE BEST ENHANCED ANNUITY
THE COMMON QUOTATION REQUEST FORM

Up until a few years ago, just about all annuity providers calculated the annuity income that they would offer a retiree using only a few factors. These were a retiree’s gender, their age, the size of their pension pot and the chosen annuity options.

Absolutely nothing else was considered. Whether you were ‘as fit as a butcher’s dog’ or ‘on your last legs’, they just used the above factors and everyone got the same standard annuity rate deal.

Now, some annuity providers still stick to this ‘one size fits all’ method while others have begun to offer annuity deals that take account of a retiree’s expected lifespan (also called their life expectancy).

Whether or not a retiree can receive an enhanced annuity income therefore comes down to something called underwriting and this is simply the evaluation of risk.

An annuity provider that offers Enhanced Annuities will examine a greater number of factors before they make an annuity offer.

These extra factors include most of the things that are likely to have a negative impact on a retiree’s lifespan.


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Each insurance company has its own set of underwriting guidelines to help the underwriter determine whether or not the company should offer a retiree an Enhanced Annuity income.

Some take into account a wide range of extra factors and others just a few or just one.

Below is a list of the main factors considered by most Enhanced Annuity providers.

 
 

A major factor that affects whether or not a retiree will be offered an Enhanced Annuity income is the state of their health.

The chances of them being offered a higher income increases if they have suffered or are currently suffering from any illness or medical condition that could shorten their lifespan (sometimes even just a little bit).

Where the medical condition or illness is particularly serious, a retiree may qualify for something called an Impaired Life Annuity.

Whereas an Enhanced Annuity can offer an income that is 5% to 40% higher than an annuity offering standard annuity rates, an Impaired Life Annuity can offer an income that is up to 100% higher.

Fewer retirees qualify for an Impaired Life Annuity than those who do for an Enhanced Annuity.

 
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As mentioned above, each Enhanced Annuity provider has their own unique set of underwriting factors that are considered before they will offer a retiree an Enhanced Annuity Income.

Consequently, each Enhanced Annuity provider will also have it’s own list of illnesses and medical conditions that would qualify a retiree for an Enhanced Annuity Income.

A list of some of the thousands of qualifying illnesses and medical conditions is shown below:

Alzheimers

Amyotrophic lateral sclerosis (ALS)

Bi-polar disorder

Cerebrovascular accident (CVA)

Cerebrovascular - brain haemorrhage

Cerebrovascular - stroke

Cerebrovascular - subarachnoid haemorrhage (SAH)

Cerebrovascular - transient ischaemic attack (TIA)

Deep vein thrombosis (DVT) or pulmonary embolism (PE)

Dementia (All types)

Diabetes, type 1

Diabetes, type 2

Haemochromatosis

Heart - angina

Heart - aortic aneurysm or abdominal aortic aneurysm

Heart - arrhythmia

Heart - atrial fibrillation

Heart attack

Heart block

Heart - brachycardia

Heart - bradycardia

Heart - cardiomyopathy (All types, incl HOCM)

Heart - endocarditis/myocarditis/pericarditis/viral heart infection

Heart - enlarged heart

Heart failure

Heart inflammation

Heart - pacemaker implant

Heart - prolapse valve

Heart - regurgitation

Heart rhythm disorder

Heart - stenosis

Heart - supraventricular tachycardia (SVT)

Heart - tachycardia

Heart valve disorder (mitral, aortic, bi-cuspid, congenital, from birth)

Heart valve replacement

Heart - ventricular ectopics

HIV/AIDS

Huntington's disease/chorea

Kidney - (end stage) renal failure (ESRF)

Kidney - chronic kidney disease (CKD)

Kidney - glomerulonephritis

Kidney - polycystic kidney disease (PKD)

Kidney - transplant

Liver - cirrhosis

Liver - hepatitis (unless hepatitis A and fully recovered)

Liver - transplant

Major organ transplants

Motor neurone disease

Multiple sclerosis (MS) all types

Muscular/myotonic dystrophy

Parkinson's disease

Peripheral vascular disease (PVD) or intermittent claudication

Respiratory - asbestosis

Respiratory - asthma

Respiratory - bronchiectasis

Respiratory - chronic bronchitis

Respiratory - chronic obstructive pulmonary disease (COPD)

Respiratory - emphysema

Respiratory - pleural plaques

Respiratory - pulmonary fibrosis

Rheumatoid arthritis

Schizophrenia

Recent research from the annuity provider MGM Advantage shows that 72% of adults in the UK, who are aged 55 and over have/had an illness or medical condition that could qualify them for an Enhanced Annuity income.

Even though they may feel fine, conditions such as high cholesterol or high blood pressure, which can both qualify people for a higher annuity income, don’t always present obvious symptoms but can cause a reduction in a retiree’s lifespan if left untreated.

The table below shows the percentage of people aged 55 and over who have suffered from some of the medical conditions that qualify for enhanced annuity rates and who require treatment and/or management by a medical professional.

Health condition that will be considered for an enhanced annuity
Percentage of people aged 55 and over who have suffered this medical condition, requiring treatment and/or management by a medical professional
High blood pressure
40%
High cholesterol
33%
Heart diseases (mostly angina and atrial fibrillation)
8%
Diabetes
12%
Stroke
2%
Heart Attack
4%
Chronic obstructive pulmonary disease (COPD)
4%
Breast cancer
3%
Prostate cancer
2%


Source: MGM Advantage, Retirement Nation Research, October 2011

 
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Of course, it is not just illness and poor health that can shorten a retiree’s life.

Another factor is their lifestyle.

Some Enhanced Annuity providers will take into account such lifestyle issues as how much a retiree weighs (i.e. are they obese?), how much alcohol that they drink on a regular basis and whether they worked in an industry that is known to have had a detrimental effect on the health of its workers (for example, coal mining).

 
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If, over the past ten years, you have regularly (and currently) smoked at least 10 manufactured cigarettes per day, or 85 grams (3 ounces) of rolling tobacco a week, you should qualify for an enhanced, smoker annuity rate of income.

Some Enhanced Annuity providers also offer an enhanced smoker annuity rate of income for retiree’s who smoke just 5 manufactured cigarettes a day.

As a general rule of thumb, the more cigarettes that you smoke the worse the impact on your life expectancy is likely to be and the more annuity income they may well offer you.

 
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It’s a fact that people who live in certain areas of the UK do not live as long as those in other areas do.

Some Enhanced Annuity providers recognise this fact by paying enhanced postcode annuity rates.

As the title suggests, your home postcode alone could qualify you for up to 5% to 10% more annuity income when compared to standard annuity rates.

 
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Even if you yourself do not smoke or have a qualifying medical condition or illness etc., it could be that, if you are buying a joint life annuity, your spouse’s or civil partner’s smoking/drinking habits or poor health could lead to you receiving a higher annuity income.

It’s not easy finding the best Enhanced Annuity deal at retirement.

As each Enhanced Annuity offer is specifically tailored to a retiree’s particular circumstances, ‘best buy’ annuity tables aren’t really of much use.

On top of that, many Enhanced Annuity providers are not happy to deal with the public directly because of all the additional paperwork that requires completing with these cases.

By far the easiest way of finding and buying the best Enhanced Annuity out there is to use the services of a professional annuity adviser.

They have access to all the top annuity providers and plenty of knowledge of how the whole process works.

With their help, you can ensure that you make the most of your pension funds and also get the paperwork completed with the minimum of fuss or error.

In addition, any advice that you receive will be protected by Financial Services laws; giving you the right to complain and receive compensation if appropriate.

According to the Association of British Insurers’ (ABI) data for 2011, where a retiree received annuity advice before buying an annuity, 40.6% of annuity sales by premium were for Enhanced Annuities, compared to 41.7% for conventional Lifetime Annuities. 

However, only 2% of retirees who chose not to obtain advice bought an Enhanced Annuity. 


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General Practitioner’s Report / Medical Examination


In order to find out if you qualify for an Enhanced Annuity income, you will have to provide full details of your medical history and any current medication that you are taking.

Annuity providers might also require a General Practitioner’s Report from your doctor and maybe even a medical examination to enable them to fully understand your state of health and calculate your likely life expectancy.

Don’t let any of this put you off applying for an Enhanced Annuity though because they are only trying to confirm what you have told them.

The major providers of Impaired Life & Enhanced Annuities have banded together and agreed between them to accept a generic Impaired Life & Enhanced Annuity questionnaire called the Common Quotation Request Form.

The aim of the Common Quotation Request Form is to simplify and speed up the process of obtaining enhanced annuity quotes. In theory, only one form needs completing by each person in order to obtain annuity quotes from each of the participating providers.

The Common Quotation Request Form can be downloaded from the following website if you wish to have a look at the kind of information required before you contact an annuity adviser: http://www.commonquotation.co.uk/


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