What is an Enhanced Annuity?

Do I Qualify for an Enhanced Annuity?

If you have any of the following conditions, you may qualify for an enhanced annuity:

• Cancer
• Diabetes
• Heart disease
• High blood pressure
• High cholesterol
• History of heart attack or angina
• Kidney failure.

Other conditions that may qualify, depending on the insurer and the seriousness of the condition, including asthma and obesity.

How much of an enhancement you’ll be offered over the annuity the insurer would have given a healthy person depends on the severity of your condition. If you have more than one medical condition, you may qualify for a further enhancement due to the higher risks associated with comorbidity.

For instance, the annuity company might look at the type and stage of your cancer before deciding the annuity rate to provide to you. Meanwhile, a person who has survived multiple heart attacks will most likely get a higher rate than someone who has had a single heart attack.

Although you will need to provide details of your condition, and may need a doctor’s report to support your claim, it’s unlikely that you’ll be required to go for a medical examination.

Smoking and Enhanced Annuities

You may also qualify for an enhancement if you’re a smoker. This might especially be the case if you’re already suffering from the health effects of smoking, e.g. lung cancer, heart disease, chronic obstructive pulmonary disease etc.

Joint Impaired Life Annuities for Couples

If your partner depends on you financially you could consider a joint life enhanced annuity. This would ensure that the income provided by the annuity would continue to be paid to your spouse or partner even after you have died.

The rate offered will depend on the state of your health and that of your spouse. If, unlike you, they are in good health the rate may be slightly lower, but it will still most likely be above the standard offer that would be available if you were both in good health.

Should I Get an Enhanced Annuity?

Broadly speaking, if you’re ill and you’re looking for a secure income for life it may well be that this is the right option for you because an annuity will never run out, and being ill you’ll likely get an enhanced yearly payout.

Of course, if you have a very limited life expectancy then locking yourself in to a long-term financial product may not make much sense. Even with the enhancement, it could be a number of years before you receive back in income what you paid in. In this instance, putting your pension pot into a drawdown fund could be a better option.

Pension drawdown allows you to draw on your pension pot with your own flexible schedule of lump sum and income payments. What’s more, it allows there to be cash leftover on your death that you can pass down to your family.

If you die before the age of 75, your loved ones can inherit your pension totally tax-free. If you die after the age of 75, then they pay income tax on the inherited pension pot at the normal rate.

Pensions are not typically subject to inheritance tax, so they can actually be an incredibly tax-efficient way to pass income down generations. This is compared to an annuity, which stops on your death or, if you have a joint annuity, on your partner or spouse’s death.

For those with a very compromised life expectancy who need to turn their pension pot into cash, a drawdown fund could be a better option than an enhanced annuity. This is particularly true if you have beneficiaries you’d like to leave your pension cash to. However, its impossible to say which would be the best option for you without knowing your circumstances. That’s why it’s so vital to get the professional opinion of an expert. The team here at Drewberry is here to help you make such a big decision.

Jonathan Cooper
Senior Paraplanner at Drewberry

Expert Advice: Finding the Best Annuity

Most people have saved for many years into their pension fund. Choosing between drawdown and an annuity is a big financial decision. That’s why it’s a good idea to give yourself time to think about what is available so that you make the best decision for you.

Your adviser will help familiarise you with your options for an income in retirement and guide you through the process. They can help you compare annuity quotes across the market to get you the best deal. Speak to an expert today on 02084327334 to discuss your retirement needs.

Neil Adams
Pension Adviser at Drewberry