Up to 40 per cent of people qualify for an enhanced annuity but take-up is less than 10 per cent, according to research from GE Life.
A total of 330,000 annuities were sold last year but only 100,000 were bought on the open market despite FSA comparative tables revealing that the difference between best and worst annuity rates can be as high as 30 per cent.
ABI figures show that 75 per cent of annuities are sold through advisers and 46 per cent of individuals using advisers took the open market option but this falls to 10 per cent on unadvised purchases.
GE Life head of strategic development Dave Lowe says the firm is devising a range of educational material which it will send to IFAs early next year and this will be backed by a series of roadshows and further consumer research.
GE Life is tailoring its enhanced annuity products to better suit individual needs. This will enable heavy smokers to receive a higher income than light smokers.
Obesity will be included as grounds for enhanced annuities when combined with, say, diabetes and/or angina.
The Annuity Bureau managing director Peter Quinton says the fact that enhanced annuities only made up 10 per cent of all open market annuity purchases in 2003 means a change in mindset is needed among annuitants.
Quinton says: “Disclosure is a problem. Smokers have always been penalised all through their lives, such as for life insurance, so a change in mindset is needed to let them know that they benefit from being open.”
Lowe says: “We want to segment people as much as possible and ensure that those who qualify for an enhanced annuity do not get a conventional one and subsidise the rest of the market.”