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Impaired sales rise by a third

Sales of impaired life and enhanced annuities grew by 30 per cent in the first half of this year and are set for further growth, putting greater pressure on conventional annuity rates, says consulting actuaries Watson Wyatt.

The firm says enhanced annuity business reached £254m in the first half, representing a 9.3 per cent share of the annuity market of £2.7bn for the half year compared with to 7.3 per cent in the first half of 2001.

Watson Wyatt believes new FSA rules requiring more prominence to the availability of the open market option, which came into force at the beginning of this month, will increase the uptake of enhanced annuities, putting pressure on providers to cut conventional rates by between 5 and 10 per cent.

It estimates enhanced annuities represent around 21 per cent of annuities bought through exercising the Omo, compared with industry estimates that up to 40 per cent of annuitants may be entitled to an enhanced annuity.

Senior consultant Mark Jones says: “The good news is that more people are becoming aware that they are eligible for increased income from their annuity.

“The bad news is that this increases the pressure on providers to reduce rates by up to 10 per cent for healthier annuity applicants.”

“This fragmentation means the healthy should consider income drawdown or investment linked annuities at retirement as an alternative to guaranteed annuities which will look increasingly expensive.”

Annuity Bureau director Ronnie Lymburn says: “Watson Wyatt are absolutely right. With increased take-up of Omo, the bigger players in the market are going to have to face up to the worry of healthy people living longer.”


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