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Written by Retirement Line
Page Last Updated: 20th December 2024
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.
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Buying a pension annuity is an option from age 55 (age 57 from April 2028) for those with savings in a 'defined contribution' personal pension or workplace pension scheme. An annuity transforms your pension savings into a regular income, which can last for life with a lifetime annuity or for a set period through a fixed-term annuity.
Once your annuity is established, the income you receive is not influenced by changes in interest rates or stock market performance. This provides peace of mind that your income won’t fall if rates or investments perform badly.
An enhanced annuity, also known as an impaired life annuity, is a type of lifetime annuity. Enhanced annuities provide higher guaranteed income for life than a standard annuity if you have certain health issues or certain lifestyle factors.
Unlike most situations, having a medical condition or adverse health history can work in your favour in this instance. Enhanced annuity providers use details about your health and lifestyle to calculate a higher income, assuming you may not live as long as someone in good health.
As they expect to pay out over a shorter time, providers compensate by offering enhanced annuity rates. This is designed to ensure you still benefit fully from your pension savings. However, this is based on averages, and it’s entirely possible to outlive life expectancy estimates while continuing to receive payments.
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 conditions that are quite common to develop in later life to health issues that tend to be more serious.
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 with certain lifestyle choices such as smoking and your alcohol consumption, as these can also affect your life expectancy.
Just some of the qualifying enhanced annuity medical conditions and lifestyle factors include:
Smoking
Alcohol
Read our guide ‘Which health and lifestyle factors qualify for an enhanced annuity?’ for further information.
Yes, all lifetime annuity providers offer enhanced annuities. However, enhanced terms are exclusively available for lifetime annuities – not fixed-term annuities.
In the months before your 55th birthday (or 57th from April 2028), your current pension scheme provider should send you a health and lifestyle questionnaire to check your eligibility for an enhanced annuity.
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 all part of the service we provide and it means we secure higher enhanced terms for over 80% of our clients. This compares with the national industry average of just 44% (source: FCA Retirement Income Market Data Sept 2023/24).
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 simplest way to proceed, but you don’t have to purchase your annuity with your pension scheme provider - and you could miss out on a higher income if you do.
In fact, the Financial Conduct Authority reported in 2016 that a staggering ‘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.
More recently, in September 2024 a report from retirement specialists Just Group confirmed that the gap between the best and worst annuity rates is still an issue. They say a healthy 75-year old could get up to 20% more income by shopping around, and 13% more at age 65. The gap could be even higher for people who qualify for an enhanced annuity.
Even if your provider does offer enhanced rates, theirs may be lower than the preferential rates we secure from our panel of leading providers. This is due to our position as the UK's largest pension annuity broker* and our close relationships with the UK’s leading annuity providers.
A good starting point is to get 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.
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 and multiple health problems, we have secured even more.
According to April 2024 data from Legal and General, even smoking around 20 cigarettes a day you could see an income boost of 10% with an enhanced annuity.
And remember that typically, the more qualifying health conditions and lifestyle factors you have, or the more serious your condition/s, the higher your enhanced annuity quote will be.
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.
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.
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.
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.
Update – October 2024 Autumn Budget:
In the Budget of 30 October 2024, the government announced that pension savings will be considered part of someone’s estate and liable to inheritance tax (IHT) from April 2027. This will be within existing IHT rules: IHT is not payable by a person’s spouse or civil partner, and is only typically payable on estates over relevant IHT thresholds.
Another aspect of inherited pensions is income tax. Currently, if you pass away before age 75 any pension funds or annuity income your beneficiaries receive is free of income tax, whereas they are liable for income tax at their marginal rate if you die after age 75. Retirement Line’s understanding is that beneficiaries may still be liable for income tax on inherited pension income from April 2027, although it isn’t clear whether the ‘age 75’ rule will remain.
More information will be available following a government consultation period that will run until early 2025. We are monitoring this issue and will report on it once the matter is clarified. Please see our Budget report for more information: Budget 2024 – pensions brought into inheritance tax from 2027.
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:
❌ 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.
✔️ 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.
Enhanced annuities are flexible as you can choose from several optional features to add to your annuity, all of which our Annuity Specialists can compare for you and arrange on your behalf.
For example, you can choose between a level annuity that provides a fixed income, and an increasing annuity where income starts at a lower level, but rises annually at a fixed rate or in line with inflation. This option can help to maintain your spending power as living costs rise. Read more about annuity inflation protection.
You can also choose to add death benefits to your enhanced annuity. This will mean that your beneficiary will receive either a lump sum or income when you pass away. Read more about annuity death benefits.
Each optional feature type has its own benefits and drawbacks, so it’s worth exploring which one aligns best with your retirement goals.
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.
Yes, if you are a couple, you can still get an enhanced annuity if only one of you has a qualifying health condition or lifestyle factor. When applying for a joint annuity, enhanced annuity providers assess the health and lifestyle details of both individuals. If either one of you qualifies for enhanced terms, then enhanced rates can still apply to the joint annuity.
However, it’s important to note that the overall enhancement might be less than if the annuity were based solely on the health of the individual with poorer health. This is because payments are designed to continue for the surviving partner, whose life expectancy is taken into account.
No, you typically cannot qualify for an enhanced annuity based solely on a family history of illness if you have a clean bill of health. Enhanced annuities focus on your personal health such as medical conditions, prescription medications, and factors that can shorten your lifespan such as smoking or obesity.
While family history can influence life expectancy in a broader sense, impaired life annuity providers rely on evidence of your current health and your personal medical history to determine eligibility and enhanced rates.
If you do not appear to have any qualifying health conditions or lifestyle factors but want to maximise your retirement income, then do speak to our specialist annuity team on 0800 652 1316. They can check your eligibility in case there is anything you might have overlooked, and run a search to find the most competitive annuity rates available to you.
While our online annuity calculator provides up-to-date estimates based on a healthy person taking a conventional annuity, enhanced annuity rates are more personalised. They depend on your unique health and lifestyle factor.
A one-size-fits-all enhanced annuity calculator simply wouldn’t be able to take into account your unique medical history. The best way to get an accurate quote is to speak with one of our Annuity Specialists. They’ll guide you through a health and lifestyle questionnaire to make sure nothing is missed, before checking your eligibility for impaired life annuity rates. This way, you can be sure you’re getting the highest possible income from your pension pot.
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Retirement Line Limited is Authorised and Regulated by the Financial Conduct Authority, FCA No. 726601. Retirement Line Limited is registered in England and Wales, registration No. 6976976. Registered Office: 52 Forder Way, Hampton, Peterborough, PE7 8JB
*Equifax Touchstone pension income and annuity sales figures 2018 to 2020. Matrix Financial Solutions Inc annuity sales figures 2021 to 2023.
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