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Enhanced annuity

Written by the Retirement Line Team

Last Updated: 1st December 2023

Receive up to 75% more annuity income than a conventional lifetime annuity

Every type of annuity lets you turn your private pension savings into guaranteed retirement income. But if you have a medical condition or make certain lifestyle choices, you could receive extra income by taking an enhanced annuity. 

This guide to enhanced annuities takes a look at how they work, who’s eligible and the options available. We also explain how to be sure of getting the best enhanced annuity rate and maximum income.

If you’re unsure whether you qualify for enhanced terms, or want to get a free annuity quote, call our team of Annuity Specialists today on 0800 652 1316 or request a call back. Alternatively, try our free annuity calculator for illustrative quotes and figures from the UK’s leading providers.

Click here for your free, no-obligation annuity quote

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What is an enhanced annuity?

An enhanced annuity, also known as an impaired life annuity, is a type of lifetime annuity. It pays you more guaranteed, regular income than a conventional lifetime annuity for the rest of your life, no matter how long you live. 

It’s not often that having an adverse medical history or current medical condition could financially work in your favour - but that’s exactly how an enhanced annuity works. Enhanced annuity rates take into consideration important information about your health and lifestyle to pay you a higher income.

Enhanced annuity providers assume that, on average, people eligible for these plans will not live as long as those with a clean bill of health. They estimate that they will pay someone with an enhanced annuity for a shorter duration. They therefore compensate by paying you a higher regular retirement income so that you still get the full benefit of your pension savings. 

Of course, this is all based on probability. Nobody can be certain about how long someone will live, and you may well live a very long life even if you are offered an enhanced annuity.

What medical conditions qualify me for enhanced terms?

There are around 1,500 different medical conditions and lifestyle choices that could qualify you for a higher income from an enhanced annuity provider. These range from potentially moderate conditions such as high blood pressure and high cholesterol to conditions that tend to be more serious, like cancer and heart disease. Your past medical history and any current issues may be taken into account. 

Even if you don’t have any enhanced annuity medical conditions, you might still be eligible for an enhanced rate. This could be the case if you make certain lifestyle choices as these can also affect your life expectancy. Lifestyle factors such as excess weight, smoking and alcohol consumption will be taken into account. The annuity provider will also look at your height and weight. Even where you live may be relevant as some postcodes qualify for enhanced annuity rates.

Alan Thomson

 

Do all providers offer enhanced annuity rates?

Lifetime annuity providers offer enhanced annuities. Your pension scheme provider should therefore give you the option of completing a health and lifestyle questionnaire to check your eligibility.

However, at Retirement Line we don’t simply send you a questionnaire to complete by yourself. Instead, our Annuity Specialists are specially trained to guide you through the questionnaire by phone. They ask the right questions in order to obtain the highest income for those who qualify for an enhanced annuity.

Comparing plans from multiple providers is important, as this is the way to find who will offer you the best enhanced annuity terms and income, if you qualify. This is part of the service we provide here at Retirement Line and we secure higher enhanced terms for over 80% of our clients. This compares with the national industry average of just 33% (source: FCA Retirement Income Data Sept 2020). 

Do I have to purchase an annuity through my pension scheme?

As you approach the age at which you’re eligible for an annuity, you might be offered an annuity plan from your pension scheme. Accepting this annuity might seem like the safest way to proceed, but you could miss out on a higher income. 

In fact, the Financial Conduct Authority reported in 2016 that ‘80% of people who purchased an annuity via their pension provider could have received a better deal from another provider’. This is especially true if you have a medical condition which might qualify you for an enhanced annuity. 

An enhanced rate offered by your pension scheme may be lower than the rates offered by the UK’s leading enhanced annuity providers on Retirement Line’s open market panel. You could also benefit from preferential annuity rates we secure due to our position as the UK's largest pension annuity broker* and our close relationships with the UK’s leading annuity providers. 

If you receive an annuity quotation from your pension scheme provider, we can compare this against quotes from leading annuity providers. This way, you know you’re getting the highest retirement income. This is all done without obligation to proceed. If we arrange an annuity for you, we will be paid a commission from the provider, which is taken into account when calculating their annuity rate.

As the UK's largest pension annuity broker*, we’re confident we can secure you the highest retirement income. In fact, we even have a Best Quote Guarantee. If you receive a better annuity quotation on a like-for-like basis directly from another broker or provider, we'll send you a £250 M&S gift voucher¹.

How much extra income could I receive with an enhanced annuity?

The amount of extra income you receive from an enhanced or impaired life annuity will largely be determined by the severity of past or present conditions, or your lifestyle choices. The extra amount can be up to 75% more, and for some customers with very serious or multiple health problems, we have secured even more.

Other contributing factors to the amount of income you might receive include your age, the size of your pension pot and the annuity rate you secure when you take out your plan. An annuity rate determines the overall level of income you’ll receive in exchange for the money in your defined contribution pension pot. 

To find out if you may be eligible for an enhanced annuity, and how much extra income you might receive, call our team of Annuity Specialists on 0800 652 1316 or request a call back and we’ll call you at a more convenient time.

Will I need to have a medical examination?

In most cases, you will not need to go for a medical examination. The annuity provider will usually be able to carry out an assessment based on your medical questionnaire. In some complex cases, they may also ask to see your medical records. They could send you for a medical examination, although this rarely happens.

To increase your income through an enhanced annuity, it’s important to disclose any health conditions, medications and treatments you were or are undergoing, however minor you may think these are. The same is true of lifestyle choices – such as smoking and alcohol consumption. They could all help increase your annuity income in retirement.

If you’re unsure whether you qualify for an enhanced annuity, one of our Annuity Specialists will be happy to help. Call us today on 0800 652 1316 or request a call back for a free, no-obligation quote. 

What happens when I pass away?

Enhanced annuities have a number of options and features. One of these is a death benefit where you nominate a beneficiary to receive an income when you pass away.

There are three main types of death benefit with an enhanced annuity:

Joint-life annuity. This option continues to pay your beneficiary an income for the rest of their life after you pass away. You don’t need to have a spouse or civil partner to qualify for a joint life annuity. You can generally take out a joint plan with any financial dependent aged 40+.

Annuity guarantee period. This will pay your nominated beneficiary an income for a set term should you pass away. For example, if you choose a five-year annuity guarantee period and you pass away two years after the annuity begins, your beneficiary will receive an income for the remaining three years of the guarantee period. 

Value protection. Adding value protection to your plan means a lump sum will be paid out to your beneficiary when you pass away. This is based on the amount you protect, say 50 or 100% of your fund, less any income you have received to the date of your death. 

Choosing a death benefit will reduce your own personal retirement income payments. If you’re thinking of adding a death benefit to your plan, our Annuity Specialists will be happy to provide annuity quotes from different enhanced annuity providers so you can compare options and their effect on your income. Simply call our team today on 0800 652 1316 or request a call back.

How will my enhanced annuity be taxed?

As with other annuity products, you’ll have the option of releasing a 25% tax-free cash lump sum at the start of your plan. All further annuity income you receive, whether that be on a monthly, quarterly or annual basis will be treated as taxable income in line with UK tax laws.

The death benefits mentioned above will be paid tax free to your nominated beneficiary if you die before age 75, but will be treated as their taxable income if you die at 75 or over.

What are the benefits and risks of an enhanced annuity?

Choosing to turn your pension pot into an annuity is a big financial decision which involves certain risks as well as benefits. Here are some of the key points to consider:

Risks of an enhanced annuity:

❌ Inflation will reduce a level annuity over time. Escalating annuities provide a lower starting income, e.g. if escalating at 3% per annum, approximately 33% lower than a level annuity.

❌ A single life annuity has no death benefits unless the appropriate option is included.

❌ No opportunity to participate in future investment returns.

❌ Once in force, the annuity contract cannot be changed.

Benefits of an enhanced annuity:

✔️ Secure level of income for life, allowing you to budget more accurately.

✔️ Benefits for your spouse or any nominated beneficiary on your death, if selected.

✔️ No investment decisions nor investment risk involved.

✔️ Improved enhanced rates with qualifying medical conditions or lifestyle issues.

Speak to an Annuity Specialist today

At Retirement Line, we pride ourselves on providing a jargon-free and impartial annuity information service. Our Annuity Specialists will also be able to provide you with a comparison of the best enhanced annuity rates from the UK’s annuity providers.

For a free, no-obligation annuity quote, try our free annuity calculator. If you’d prefer to speak with an Annuity Specialist directly, you can call us on 0800 652 1316 or request a call back - or email us at info@retirementline.co.uk.

Click here for your free, no-obligation annuity quote

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