Independent Financial Advisers

What is an enhanced annuity or an impaired annuity? 

Conventional annuities are based upon the average life expectancy and your sex, as women on average, live longer than men. This is fair for those in good health, but not necessarily for those with current or past health issues. If you have, or have had, heath issues it is vital and very much in your financial interest, to explore whether your condition qualifies for an enhanced annuity or an impaired annuity.

Enhanced annuities pay a higher income because an allowance is made for any lifestyle or medical conditions which might reduce life expectancy. These include smoking -10 cigarettes (or the equivalent cigars or tobacco) a day for the last 10 years, obesity, high cholesterol, high blood pressure, diabetes and many others.

The income from an enhanced annuity can be up to 30% higher than that offered from a standard annuity.

Impaired annuities pay an even higher income for those who have significantly lower life expectancy. The impaired annuity provider will require a medical report from your doctor (there is no need for you to have a medical examination). Medical conditions such as; heart attacks, heart surgery or angina, life threatening cancers, major organ diseases e.g. liver or kidney and other life threatening illnesses such as Parkinson's and strokes will be considered. 

The income from an impaired annuity can be 50% or more above the income from a standard annuity.

Who is likely to qualify for an enhanced annuity or an impaired annuity?

Even if you are perfectly healthy, you could get your annuity enhanced if your spouse, civil partner or dependant has one of the conditions covered and you want to include them in your annuity.

If you, your spouse, civil partner or dependant can answer yes to one or more of the medical questions below, you could qualify for an enhanced annuity or an impaired annuity.

1. Do you smoke?
2. Do you, or have you ever, taken prescription medicine?
3. Have you ever been hospitalised for a medical condition?
4. Do you have any permanent medical condition?

The 10 most common qualifying conditions for an enhanced or impaired annuity are:*

• Smoker/Lifestyle
• Diabetes
• Heart Attack
• Angina
• Asthma
• Stroke
• Atrial Fibrillation
• Prostate Cancer
• TIA (mini Stroke)
• Breast Cancer

* Source Just Retirement 2009.

There are in fact over 1,500 medical and lifestyle conditions that could qualify you to have your annuity enhanced or qualify for an impaired annuity.

How much do you need to buy an enhanced annuity or impaired annuity?

You buy an enhanced annuity or impaired annuity with your pension fund or your own money.

The minimum amount you'll need to buy an enhanced annuity or impaired annuity is £10,000. (If using  your pension fund this would be after you've taken any tax-free cash.)

On what basis is an enhanced annuity or impaired annuity available?

An enhanced annuity or impaired annuity is available as a level annuity, index linked annuity (increasing either by a fixed percentage or in line with inflation each year) or on a with profits basis. As with conventional annuities you can receive your annuity income either monthly, quarterly, half-yearly or yearly. You can choose for your annuity income to either be ‘in advance' (this means that payment of your pension income will be from the start date) or ‘in arrears' (payment will be from one month, quarter, half-year or year after the start date, depending on your chosen payment frequency).

What are the advantages and disadvantages of an enhanced annuity or impaired annuity?  

Advantages

• An enhanced annuity or impaired annuity takes into account any current or past health issues that you, your spouse, civil partner or dependant may have.
• You can use your pension fund or your own money to buy an enhanced annuity or impaired annuity.
• The minimum amount you'll need to buy an enhanced annuity or impaired annuity is £10,000.
• The income from an enhanced annuity or impaired annuity will be higher than that offered by a standard annuity.
• A conventional enhanced annuity or impaired annuity promises to pay you a regular income for life, so it’s a low-risk option.
• An enhanced with profits annuity enables you to benefit from future investment gains and future growth in income.
• Any charges for setting up and running your plan are taken into account when your annuity income is established. No further charges will be taken once the annuity is in force.

Disadvantages

• Once you've bought your enhanced annuity or impaired annuity it has no cash-in value at any time.
• Your enhanced annuity or impaired annuity ends when you or your spouse, civil partner or dependant die. This means that you may not receive your money's worth from your annuity if you or your spouse, civil partner or dependant die soon after taking it out.
•  The options you choose at the start of your plan can't be changed.