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If you smoke, have high blood pressure or a serious illness, you should be able to get a higher retirement income for life.
There are many types of insurance, such as life insurance, travel insurance or income protection policies, where you’ll get a better deal the healthier you are.
But there’s one type of financial product, an annuity, which generates an income from a pension fund, where you’ll get more if you have a health problem or illness. It’s not very cheery to think about, but the worse your health problem, the more money a pension company will pay you each year.
Here, we explain how annuities work and how having a medical condition could boost your retirement income.
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If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide Chartered independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial adviser. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 2,600 reviews on VouchedFor, the review site for financial advisers.
Who needs to buy an annuity?
If your pension is in a final salary scheme, you don’t need to worry about buying an annuity because your retirement income will be paid to you automatically. And although people with defined contribution pensions (which are workplace pensions where the amount they get depends on how well the fund has performed) or personal pensions don’t have to buy an annuity to turn the fund into a regular income, many people decide to take this route to guarantee that their pension savings will last throughout their life.
Find out more about the different options you have at retirement in our guide Approaching retirement? Here’s what you can do with your pension.
Who can get more money?
There are around 1,500 different illnesses or lifestyle conditions that could mean you receive a higher income than someone on a standard rating. And there are two types of annuity that may pay you a higher income every month based on your lifestyle or health:
- Enhanced annuity: this will pay you more if you’re a smoker or are overweight, for example.
- Impaired life annuity: this will pay you a higher income if, for example, you have high blood pressure or have had a stroke or cancer.
How much more could you get?
It’s a bit of a ‘how long is a piece of string’ type of question as the answer depends on how serious the condition is that you’re suffering from. However, it could be from 10% more up to as much as 50% more.
Here are some examples, but remember the exact amount you’ll be able to get depends on your particular circumstances and the severity of your condition:
- Smoker: 10% more
- High blood pressure and high cholesterol: 21% more
- If you’ve had a heart attack: 29% more
- Insulin-dependant diabetes and taking one other medication: 33% more
- If you’ve had a stroke: 35.5% more
It’s worth noting that the gap between the amount you’ll receive from an enhanced annuity and a standard annuity has reduced, in some cases. That’s mainly because we’re living longer even after suffering from a serious illness. But the difference between the enhanced and standard rates can still be significant, as these examples illustrate.
Before you retire
Your pension company should send you what’s called a ‘wake up pack’ before your chosen retirement date. It will tell you about the advantages of shopping around for an annuity (the clumsy phrase that describes the process is the ‘open market option).
Don’t – under any circumstances – take the pension payment you’re offered from the company you’ve saved with without finding out whether you could get more elsewhere. This is especially important if you think you might qualify for an enhanced or impaired life annuity as quite a few pension companies don’t offer them. Find out more in our article Why it pays to shop around for your annuity.
If you shop around for an annuity
The company you’re shopping around for your annuity with should ask you three key questions:
- Do you smoke?
- Are you taking prescription medicine?
- Have you been in hospital recently?
You should start shopping around for an annuity several months before you retire as the process can take longer than you think. Any medical information you provide should be valid for six months, so if your retirement date is in six months, there’s no harm in seeing if you qualify for an enhanced annuity sooner rather than later. It’s a good idea to get a quote earlier because you can act if annuity rates look like they’re about to nosedive.
What you’ll have to do
Some annuity brokers will ask you to fill in a form, known as a ‘medical detail form’, which can be quite long – up to 20 pages. Although you shouldn’t have to fill in all of it, some people find it quite off-putting. A number of annuity brokers are starting to use specialist companies that employ trained nurses to take details over the phone which is then passed onto the annuity provider.
There are advantages to this approach, namely that more people end up with an enhanced/impaired life annuity. This is because the trained nurse will get better information (by asking follow up questions) and will be able to make a link between medication or illnesses that a financial adviser – and the customer – may not make.
For example, many of us talk about our own health in a subjective way. Someone who has high blood pressure but is taking medication to control it may not see themselves as suffering from high blood pressure and could miss out on higher rates as a result.
The more information the annuity underwriter has, the easier it is for her or him to make a decision on how much to pay someone. If the report is very precise, and has a lot of background information, it can result in a higher payout because there are fewer grey areas.
A final thought…
The key message if you’re considering using your pension to buy an annuity is not to take your pension provider’s first offer at face value. If you have a medical condition, take medication, or even simply smoke, you could be entitled to a higher income for life.
Shopping around and being open about your health can make a significant difference to the amount you receive, so it’s well worth exploring all your options before making a decision. That way, you can make sure your hard-earned pension savings give you the best possible income in retirement.
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If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide Chartered independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial adviser. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 2,600 reviews on VouchedFor, the review site for financial advisers.
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