At retirement age, many people have a pension pot that they use to buy a retirement income – normally an annuity.
When you buy an annuity, it’s really important that you disclose all your health problems, as well as any lifestyle issues that may cause poor health in future, such as smoking.
That’s because insurers will pay a higher income to someone in poor health – after all, if your health is poor, you’re more likely to die at a relatively young age. These higher rate annuities are known as enhanced annuities.
We’ve written about enhanced annuities several times before on lovemoney.com, but I’ve now got more information on how big an uplift you can get from different lifestyle problems. Let’s take a look at some figures:
Annuity boost from different lifestyles
10 cigarettes a day for the last 10 years
50+ units of alcohol per week
One tablet for high blood pressure and one tablet for high cholesterol
Body Mass Index (BMI) of 36 or higher
Source: Just Retirement
These figures are for a 65-year-old man with a £45,000 pension pot.
The uplift is the difference between the lowest-paying standard annuity and the best enhanced annuity for this man. The uplift would be significantly smaller if you compared the best available standard annuity with these enhanced annuities.
Still the uplifts are very sizeable and they would be even more sizeable if someone could say that more than one lifestyle factor applied to them.
Here’s a case study which shows how combining different lifestyle factors can lead to a big accumulated uplift. Once again, we’re looking at a 65-year-old man with a £45,000 pot. He has no history of serious medical problems and he’s not taking any medication. But he can still get a decent enhanced annuity.
[Related link: 10 myths about saving for retirement]
Here are the lifestyle factors that, in combination, boost his income:
Five feet 10 and weighs 22 stone
Works as a carer and lives in a postcode associated with poor health
He drinks 36 units of alcohol a week
Source: Just Retirement
As with the previous table we’re comparing against the lowest standard annuity the man could get. In this example, the man wouldn’t get 26% just for his weight on its own, he only gets that big an uplift because the other factors apply.
What should you do?
When you buy an annuity it’s essential that you shop around between different providers. Don’t just take the annuity you’re offered by your pension provider. That will almost certainly increase your pension.
Then your next step is to see if you qualify for an enhanced annuity. So when you’re asked questions about your health and lifestyle, make sure you give complete answers and highlight every possible illness/condition and lifestyle.
Obviously, you shouldn’t lie; just make sure you provide all the relevant information.
Then from there, it makes sense to get advice from a good annuity broker such as Annuity Direct or Hargreaves Lansdown.
The broker will then put you in touch with an annuity provider who will sell you an annuity.
If you want to get an enhanced annuity, you’ll normally be asked to fill in a 23-page questionnaire called the Common Quotation Form. However, one annuity provider only asks you to fill in a shorter questionnaire.
As far as I’m concerned, it makes much more sense to fill in a longer form as you’re more likely to disclose conditions or lifestyle issues that could boost your annuity.
So shop around and make sure you fill in a very long form about your health!
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