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The rate attitude

Sales of enhanced annuities passed 1bn for the first time last year but they still account for only 10 per cent of annuities sold. Consultant Watson Wyatt suggests that this is a fraction of the potential market and that up to 40 per cent of annuitants could be entitled to an enhanced annuity.

Partnership chairman Ian Owen thinks this is a conservative estimate. He says: “Many pensions are joint pensions. You could have a healthy pensioner but the spouse could have a condition which entitles them to an enhanced annuity. If you argue that, then half the pensions taken out should have some form of enhancement.”

Enhanced annuities offer increased rates where the life expectancy of the policyholder is shorter than normal, perhaps due to them being a smoker, having high blood pressure or a serious medical condition so why aren’t enhanced annuities taking a bigger share of the market?

Owen says there are a number of reasons. First, he says the public are not aware of the possibilities and think that shopping around is about getting the best rate for their age as opposed to the best rate for them as an individual. “It is the same as shopping around for motor insurance based on your age and not the car you drive. The public have not been educated. That is a job that Partnership and others need to work on, as it is our responsibility to educate them,” he says.

The second reason cited by Owen is that when people do approach an adviser, they are often not asked about their medical conditions and many people find it awkward to talk about their medical conditions with an IFA.

He adds that comparison tables often treat enhanced and impaired annuities as an after-thought. Owen says: “If you look through the weekend press and see a table of annuities, they are all standard annuity rates. It is very difficult to have the sense that enhanced and impaired should apply to a good percentage of the population as opposed to being a niche.”

To ensure that people fully understand their options, Owen says the open market option should be overhauled. He says: “The literature that companies send to vesting pensioners should be thoroughly reviewed by the FSA to make sure that the benefits of shopping around are very clear. I would like to see the open market option as the default option.

“There are huge delays when money comes out of vesting schemes, so there are delays with annuities being established. It can take up to two months for us to receive the money. That should be a good deal shorter, particularly for people who have got shorter life expectancy.

“The best providers send money within a couple of days. If the unit trust industry can ensure you receive money within 48 hours, it should be no different for pension pots.”


Six on list for FSA

There are six candidates in the running to replace Sir Callum McCarthy as FSA chairman, including Lloyds TSB deputy chief executive Michael Fairey, Money Marketing understands.
Fairey, 59, is retiring from the bank in the summer and is a member of the FSA’s retail financial services group.

Cracking the safe

The variable annuity market has seen a lot of activity in the last two years and at least two providers, Standard Life and Aegon, have plans to enter the fray this year.


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