ADEQUATELY funding your retirement has become a hot topic in the past couple of years, with a combination of falling interest rates and pension annuity rates eroding the value of pension pots. Earlier this month, it was reported that annuity rates, which are a key determinant of annual income post-retirement, had tumbled to a 20-year low – a pot of £100,000 would only give you an annual income of £6,350.
Although research from Just Retirement showed that more than half of those verging on retirement may be eligible for an enhanced income as a result of lifestyle and health conditions, pension consultants Towers Watson report that only 12 per cent of all annuities purchased are enhanced.
Enhanced or impaired life annuities have been available in the UK since 1995 and pay higher rates because people with certain medical and lifestyle conditions (such as smoking) statistically have a shorter life expectancy than those who do not.
Based on the General Lifestyle Survey 2008, Just Retirement estimates that between 55 and 65 per cent of those retiring might have conditions that qualify them for an enhanced or impaired life annuity. These can include smoking, high blood pressure and diabetes.
So why do so few people currently take up what is essentially an offer of greater annual income in retirement? Aston Goodey, sales and marketing director at retirement income specialists MGM Advantage, says that people don’t like to be seen as unhealthy and are therefore less likely to request enhanced annuities. Furthermore, people have been told for years that disclosing poor health conditions puts them at a disadvantage. In fact, when it comes to annuities, you really do need to tell the provider everything if you want to receive an uplift in income.
Nigel Barlow, head of research at Just Retirement, says that even if you feel healthy, it is worth getting a medical check-up before retiring. Once you have exchanged your pension pot for an annuity, the terms and rates are fixed. So if you buy your annuity at a standard rate and then find out from your doctor a month later that you have diabetes, high blood pressure and high cholesterol, you will not be able to request an income enhancement. Depending on which annuity you buy, you can name a beneficiary if you die before your annuity guarantee period has run out. Otherwise, the money goes to the provider.
If you think you might be entitled to an enhanced annuity rate then it is worth finding an independent financial adviser who specialises in retirement and annuities. They should be able to help you get the best rates given your health and lifestyle.
As a rule of thumb, it is worth getting a check-up and disclosing all your medical conditions. It could well lead to a more comfortable retirement.