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70 per cent or retirees unaware enhanced annuities exist

Seven out of 10 over 55s are not aware that they can enhance an annuity based on health or lifestyle conditions.

A nationwide survey of more than 750 people by Hargreaves Lansdown shows that while over half of annuities are eligible for a boost because of health or lifestyle, the majority of retirees are not aware of this.

Hargreaves’ figures put the average enhanced annuity uplift over the last 12 months at 14 per cent, and 56 per cent of all open market annuities arranged received some form of enhancement.

For high blood pressure or cholesterol the uplift may only be 1 per cent, but a ten a day smoker could receive 10 per cent, with uplifts for diabetes and strokes typically coming in at 14 per cent and 25 per cent respectively.

Other conditions that can quality for enhanced quotes include hypertension, respiratory or heart disease, cancer or neurological conditions.

Hargreaves senior analyst Nathan Long says: “Buying an annuity is still one of the only ways to ensure you won’t run out of money in later life.

“We’re used to any ailments or bad habits costing us more when we buy insurance policies, but the opposite is true when you apply for an annuity, in fact on average an enhanced annuity increases the pension payouts by 14 per cent.

“Even if you plan to keep your pension invested and use drawdown, getting an annuity quote can make sure you are making a fully informed decision.”



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There are 3 comments at the moment, we would love to hear your opinion too.

  1. A pretty awful statistic which suggests either that:-

    1. providers still aren’t making sufficiently prominent the availability of enhanced/underwritten annuities (in this day and age, unlikely I would have thought) or

    2. they aren’t setting out typical examples of how much better an enhanced annuity could be by comparison with a basic rate one or

    3. they aren’t highlighting the security and (relative) simplicity of an annuity or

    4. retirees don’t read their pre-retirement packs (because they’re intimidatingly long). Again, a brightly coloured, single page, standalone summary of options with notes against each of them of the pro’s and con’s might well help (perhaps a few providers have actually started providing them, though I’ve not seen a pre-retirement pack for a while) or

    5. most retirees are so dead set against annuities that they don’t want even to consider their merits, assuming, mistakenly and without understanding the risks, that Income DrawDown is a means of extracting a quart from a pint pot or

    6. that IFA isn’t worth paying for or

    7. ignorance of the fact that most IFA’s offer an initial consultation at no charge and that

    8. many IFA’s still operate on a contingent charging basis for annuities (should their assessment be that Income DD probably isn’t appropriate), so a fee won’t be required or

    9. ignorance of the advice allowance that more modern contracts (but very probably not most older ones) can facilitate and

    10. Attraction to the path of least resistance, namely to accept whatever annuity that the holding provider is offering without considering the potential benefits of shopping around (which is why, IMHO, the only annuities that providers should be permitted to quote in their pre-retirement packs are enhanced/guaranteed ones).

    Considering all these reasons why so many retirees still are still not deploying their pension funds in the most advantageous and suitable manner, it seems almost incredible (though perhaps not) that the regulator hasn’t managed to come up with a framework to address them. How hard can it be?

  2. Since 2015, a lot of customers have moved to UFPLS which together with Drawdown has reduced the number taking the Annuity route.

    Certainly in the past, for many people the most important part was the big cheque (TFC) with little interest in the Annuity.

    They all naturally were misled and want compensation.

    The Packs were quite bulky, although the first part(a five/six page letter) did spell out what the options were, and by about 2012 gave more information about the potential impact of the choices. However, your suggestion of a typical enhancement needs to take into account that no two customers are the same and an accurate figure may require underwriting.

    The biggest factor was that some providers were closed to new business and customers would need to take OMO, (which was explained).

    You can take a horse to water…

  3. Duncan Gafney 16th May 2019 at 4:03 pm

    When even the best enhanced rates will still take 20 years or more to give back the money handed over at outset, is it any wonder clients tend to ignore them?

    Whilst a 14% uplift might sound good, 14% of not a lot is still not a lot.

    Annuities are good for some people, but when we consider the effect pension freedoms have had on the annuity market (which was entirely predictable), is it honestly surprising that most clients will not even consider them? Especially if they have an impaired life expectancy?

    We used to recommend a lot of things such as Prudential Income Choice annuities, simply because they provided some of the key benefits of annuities, whilst not locking clients into god awful rates of return.

    However entirely predictably, those options have disappeared and normal annuities have become a lot less competitive because of the lack of demand.

    Yes annuities should always be considered, but the chances of more than a tiny % of clients wanting one is remote.

    But like RDR, it’s an example of politicians driving changes and not caring about the results for normal people.

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