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Confused about enhanced annuities

Belfast Telegraph Digital's Personal Finance Forum offers expert advice from ASM Horwath directors Alan Curry and Keith Storey.

Question: I am due to retire and have looked at the option of an annuity. I can’t afford to take on any risk as I need to be able to guarantee my income. I have seen quotes for Enhanced Annuities. What are these? PD, Limavady

Answer: When you buy an annuity the benefits are generally fixed for life. It is vital that you make the right decision at the outset. Your health and that of your wife/partner is an area that a financial advisor should investigate before making any recommendations.

Before we arrange annuities, we ask every client about their medical background and in many cases complete a full medical questionnaire to obtain accurate information. Based on some research I completed on the Money Facts web site, up to 40% of retirees could qualify for an enhanced annuity and based on an average fund size of £26,000, this could improve your income for life by up to 40%.

What is required to qualify for an enhanced annuity? You may qualify for an enhancement to your annuity rate if you are a smoker, have blood pressure, are overweight or if you have been hospitalised in the past for a medical condition affecting any major organ. If you are currently on prescribed medication on an ongoing condition, you may also qualify for an enhancement.

Where appropriate we submit the medical questionnaire to a number of annuity providers to obtain the best terms for clients.

An annuity is the most common way of securing an income in retirement. You purchase an annuity with your pension fund, normally after the payment of a tax free cash sum, which provides you with regular income for life in exchange for your pension fund.

You can have income which increases or remains level, is guaranteed to pay to you or your estate for a fixed period whether or not you are alive and you can provide an income for your spouse or partner on you death.

Not all providers offer the same annuity rates, however, and this is why picking the most appropriate provider is vitally important. An Independent Financial Advisor can provide you with comparative rates, including those who provide enhanced annuities, from the majority of companies who are active in this market.

The fact that you have used one particular insurance company to build up your pension fund does not restrict you from shopping around for the most competitive annuity rate for your circumstances. This is called the Open Market Option.

Even if you are healthy, there can be as much as 15% difference between the best and worst annuity rates. As an annuity income is paid for life, the extra could add up to a significant amount over time – at no extra cost to you. But take advice form a suitably qualified Independent Financial Advisor before you buy your annuity. KS

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