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Big rise in impaired-life annuity business

Sales of impaired-life annuities rose by 55 per cent to £651m last year from £420m in 2001 and now account for 23 per cent of annuities sold through the open-market option, says consultant Watson Wyatt.

Its research shows the share of the overall annuity market taken by impaired-life annuities rose to 10.2 per cent from 7.8 per cent in 2001.

The total market for conventional annuities rose by 21 per cent to £6.4bn from £5.3bn.

But senior consultant Mark Joannes says sales of impaired-life annuities, which include annuities enhanced for serious medical conditions and as a result of lifestyle factors such as weight, smoking, occupation and geographical location, are still running well below their potential.

He points out that sales were less than half of industry estimates that up to 40 per cent of annuitants may be entitled to impaired-life annuities.

Joannes says: “At a time when pensions are being hit by falling equity markets and low annuity rates, this increase in sales represents at least some good news for a growing number of people who realise they are eligible for enhanced rates.

“One impact that should not be forgotten is that this fragmentation of the market is likely to result in worse rates for healthy lives. It could be that, for healthy lives, the option to defer taking an annuity, as proposed by the Inland Revenue, may prove invaluable.”

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