In Poor Health? Boost Your Retirement Income

When you are ready to convert your pension fund into an income, you will most likely be considering doing so by purchasing an annuity. An annuity is a policy that allows you to invest a lump sum and then receive an income for a set period of time (usually through to death).

While there are many conditions that can be attached to an annuity to customise it to individual circumstances, there is one statement that rings true for all lifetime annuities: the healthier you are, the lower the income amount is will be. This is because the life company that provides the annuity is likely to have to pay an income to the annuitant for longer.

When purchasing an annuity, it is perhaps the only time that being ill or having a ‘vice led’ lifestyle actually pays!

Special annuities

There are two types of annuity that will pay higher rates of income from the standard, though not all providers will offer such policies.

Impaired Life Annuities

These are designed for those people who are suffering from a range of specific and specified health problems. These health problems will be deemed to negatively affect life expectancy, and so the annuity will pay out its income for less time.

The health problems that would qualify for such a policy are wide ranging, but include anything from cancer through to having had a triple heart bypass, to those suffering high blood pressure.

Enhanced annuities

Less specific than an impaired life annuity, an enhanced life annuity is designed for those with particular lifestyles that may affect longevity. For example, being a heavy smoker or drinker of alcohol, or perhaps having an obesity problem, are all likely to cut life expectancy. While not recognised diseases or conditions in the same way that heart disease is, for example, the life company will take the view that a person with such a lifestyle is unlikely to live as long as a person with no such vices, and consequently pay a higher rate on the annuity.

Checking on your condition

Obviously, with the better income rates offered under impaired life and enhanced annuities, the life company will not just accept a client’s word for his condition. It is likely that his doctor will be contacted, and the potential annuitant may have to attend a medical for independent verification of condition. Each case is treated individually, and other factors such as where the annuitant lives will be taken into consideration.

Seek advice

As you approach retirement, it is imperative that you seek advice. There are a lot of decisions to make, and now, more than any other time, the decisions you make may be irreversible. You won’t have the income from a job to fall back on, and you need to ensure that your desired lifestyle through retirement is met.

Your pension scheme provider will write to you explaining the alternatives available, but most schemes will allow you to go elsewhere and affect an open market option on your pension scheme. This means that you will be able to purchase an annuity from other providers. You should investigate all your options at this time, including the amount of tax free cash lump sum available, and look for the best rates of income available to you. A financial advisor will be able to help with this process.

Be honest with the financial advisor

The financial advisor is there to help you achieve the highest income in your retirement possible. He will ask you about your health and your lifestyle. Be honest with him, and hide nothing. More than at any other time of your life it is in your best interests to let him know if you are a heavy smoker, or drink a bottle of spirits every day. If you have particular health problems, let him know this, too.

Many annuities are taken on what is called a joint life basis. In such instances, the health of your partner will also be taken into account when calculating the income available to you.

There will be only one form for you to fill in (perhaps two if you have a partner), and the advisor will be able to send this to every provider that offers an annuity which matches your requirements. You will then receive quotes back from the life companies through your financial advisor, and at this stage you will be able to select the one that is most competitive.

In conclusion

When you are nearing retirement age you should seek the help of a financial advisor. Be open and honest with him, and he will be able to source the best annuity for you and your personal circumstances. Ill health or prior medical conditions/ operations may impact upon your expected longevity, and this will positively impact the amount of income that a life company will offer to you. An enhanced or life impaired annuity will pay out better rates than a standard annuity.

If the financial advisor doesn’t ask health and lifestyle questions and alert you to the option for enhanced annuities, then you should find a new advisor.

Never immediately accept the annuity offer sent to you by your pension plan provider without receiving independent advice: it could cost you thousands, if not more.

It is estimated that one in three retirees in the UK would be eligible for a higher income upon retirement because of health or lifestyle issues. By following these simple guidelines you will ensure that your income from annuity in retirement is as high as it can be.