Enhanced Annuities
How do they work?
An Enhanced Annuity pays a higher income in retirement if you have a medical condition that may reduce your life expectancy. This is because an annuity is, in essence, a ‘bet’ with the annuity provider about how long you will live.
When you invest in an annuity, the provider converts your pension ‘pot’ (the total amount you’ve accumulated within your pension) into income payments, which are paid for the remainder of your life.
If you die before your predicted life expectancy, the insurance company will make a profit, which is used to pay the incomes of those who live longer than predicted. If you live longer than your predicted life expectancy, you will have won the ‘bet’ with the insurance company – and received a higher pension than you would have otherwise received.
What are the benefits?
The following benefits highlight the importance of getting good quality advice before you take out an annuity.
State of Health and Income
The amount of extra income you could earn in retirement depends on your actual state of health, or your lifestyle. If you have high blood pressure or high cholesterol, you could receive around 7% more income than from a ‘conventional’ annuity.
Smokers and Income
If you are a smoker, you may be eligible to get up to 16% more income than what you currently receive. If you are very seriously ill, the extra income will be significantly higher. A financial adviser can advise you on how to apply for enhanced annuities.
This article (Enhanced Annuities) is intended to provide a general appreciation of the topic and it is not advice.
For more information please contact Centrad Limited on 01922 745400 or email enquiries@centradltd.com and we will be happy to assist you.
Article expiry: 06 April 2023