Don't be coy over health. It could cost you dear

Millions are losing out in retirement by failing to claim an enhanced annuity. By Julian Knight

The amount of money you can expect your pension pot to pay you in retirement is falling off a cliff.

In the last month alone, some of the UK's biggest insurers have been cutting their annuity rates by nearly 5 per cent in reaction to the Bank of England's quantitative easing programme and new EU gender discrimination rules looming into view – potentially wrecking the retirement hopes of millions of Britons.

And things may only get worse for many male annuitants, with a EU directive coming into force in December stopping insurers from taking gender into account – a key indicator of life expectancy – when quoting for annuities. As a result, annuities for men are going to shrink – by as much as 20 per cent in some cases – while edging up only slightly for women.

So making the most of your pension pot when it comes time to buy an annuity is key. First, this means exercising the open market option where you don't just accept the quote given by your pension provider but look elsewhere. The Annuity Bureau estimates that for a £100,000 pension, the difference between the highest and lowest-paying annuity provider is just over £500 a year.

Annuity choice is also vital. Choosing a level annuity – which doesn't rise in line with inflation – means a higher initial income than a product which is index linked. However, after about a decade, the level annuity will normally be worth less than one which is index linked.

But, the biggest mistake annuity buyers make is not to consider any health or lifestyle issues they have which may lead to them having a shorter life and would mean their income should be higher. Insurance industry figures show fewer than one in seven annuities sold is on an "enhanced" basis – which means payouts are higher because the annuitant is likely to have a shorter life. But research by provider Partnership shows that upwards of 13 million Britons have medical conditions which mean they could claim an enhanced annuity.

This is because, according to Nigel Barlow of Partnership, Britons don't know what range of conditions could qualify them for enhanced annuity.

"People wrongly assume the condition needs to be life threatening to qualify," he says. "Financial advisers should be asking their clients about their medical conditions. Too many retirees are averse to declaring their full medical circumstances, incorrectly believing it will result in a lower income rather than a higher one."

Conditions that can qualify you for an enhanced annuity not only include stroke, cancer and heart disease but far more common chronic ailments including diabetes and high blood pressure. In fact, of the 13 million Britons who could qualify for an enhanced annuity, close to 10 million have high blood pressure or diabetes.

New industry rules are planned which will see all providers having to ask basic, background medical questions to flag up if an enhanced annuity is needed, but this is not enough for some. "The first question a client should ask is: does their adviser accesses the whole of the market. If the answer is no, find someone who does.

"Also, make sure the full medical questionnaire is completed with as much detail as possible. Many clients include doctors' letters and details of repeat prescriptions. The adviser can then access a quote from all providers," says Bob Bullivant, the managing director of Annuity Direct.

Being a smoker can also lead to a higher annuity: "You must tell the provider if you smoke, if you are taking any prescribed medication and if you have had any period of hospitalisation in the past five years. "If you have answered yes to any of these questions there is a good chance you could qualify for an enhanced annuity," Stephen Lowe, the managing director of Just Retirement, says.

Research by Oxford Economics shows Britons could be missing out on £3bn in additional retirement income by not going down the enhanced annuity route; that would go some way to make up for the huge drops in payouts now being reported.

Independent Partners: 10 top tips for retirement. Get your free guide here

A model of a Neanderthal man on display at the National Museum of Prehistory in Dordogne, France
Richard Dawkins dedicated his book 'The Greatest Show on Earth' to Josh Timonen
newsThat's Richard Dawkins on babies with Down Syndrome
Arts and Entertainment
Eye of the beholder? 'Concrete lasagne' Preston bus station
architectureWhich monstrosities should be nominated for the Dead Prize?
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    AIFMD Business Analyst / Consultant - Investment Management

    £450 - £600 per day: Harrington Starr: AIFMD Business Analyst / Consultant - I...

    Business Analyst Solvency II SME (Pillar 1, 2 & 3) Insurance

    £450 - £600 per day: Harrington Starr: Business Analyst Solvency II SME (Pilla...

    Manager - SAS - Data Warehouse - Banking

    £350 - £365 per day: Orgtel: Manager, SAS, Data Warehouse, Banking, Bristol - ...

    SQL DBA/Developer

    £500 per day: Harrington Starr: SQL DBA/Developer
 SQL, C#, VBA, Linux, SQL Se...

    Day In a Page

    Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

    We know all too much about the cruelty of Isis – but all too little about who they are

    Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
    Neanderthals lived alongside humans for centuries, latest study shows

    Final resting place of our Neanderthal neighbours revealed

    Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
    Scottish independence: The new Scots who hold fate of the UK in their hands

    The new Scots who hold fate of the UK in their hands

    Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
    Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

    Blight club: Britain's ugliest buildings

    Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape
    eBay's enduring appeal: Online auction site is still the UK's most popular e-commerce retailer

    eBay's enduring appeal

    The online auction site is still the UK's most popular e-commerce site
    Culture Minister Ed Vaizey: ‘lack of ethnic minority and black faces on TV is weird’

    'Lack of ethnic minority and black faces on TV is weird'

    Culture Minister Ed Vaizey calls for immediate action to address the problem
    Josephine Dickinson: 'A cochlear implant helped me to discover a new world of sound'

    Josephine Dickinson: 'How I discovered a new world of sound'

    After going deaf as a child, musician and poet Josephine Dickinson made do with a hearing aid for five decades. Then she had a cochlear implant - and everything changed
    Greggs Google fail: Was the bakery's response to its logo mishap a stroke of marketing genius?

    Greggs gives lesson in crisis management

    After a mishap with their logo, high street staple Greggs went viral this week. But, as Simon Usborne discovers, their social media response was anything but half baked
    Matthew McConaughey has been singing the praises of bumbags (shame he doesn't know how to wear one)

    Matthew McConaughey sings the praises of bumbags

    Shame he doesn't know how to wear one. Harriet Walker explains the dos and don'ts of fanny packs
    7 best quadcopters and drones

    Flying fun: 7 best quadcopters and drones

    From state of the art devices with stabilised cameras to mini gadgets that can soar around the home, we take some flying objects for a spin
    Joey Barton: ‘I’ve been guilty of getting a bit irate’

    Joey Barton: ‘I’ve been guilty of getting a bit irate’

    The midfielder returned to the Premier League after two years last weekend. The controversial character had much to discuss after his first game back
    Andy Murray: I quit while I’m ahead too often

    Andy Murray: I quit while I’m ahead too often

    British No 1 knows his consistency as well as his fitness needs working on as he prepares for the US Open after a ‘very, very up and down’ year
    Ferguson: In the heartlands of America, a descent into madness

    A descent into madness in America's heartlands

    David Usborne arrived in Ferguson, Missouri to be greeted by a scene more redolent of Gaza and Afghanistan
    BBC’s filming of raid at Sir Cliff’s home ‘may be result of corruption’

    BBC faces corruption allegation over its Sir Cliff police raid coverage

    Reporter’s relationship with police under scrutiny as DG is summoned by MPs to explain extensive live broadcast of swoop on singer’s home
    Lauded therapist Harley Mille still in limbo as battle to stay in Britain drags on

    Lauded therapist still in limbo as battle to stay in Britain drags on

    Australian Harley Miller is as frustrated by court delays as she is with the idiosyncrasies of immigration law