Want a better pension? Don't get fit, get fat

Today'sjogging and health club generation of 20, 30 and 40 year olds could be in for disappointment on retirement, if an initiative from one pension company catches on. The health conscious could find they get lower pensions than their couch-potato counterparts. And it means they will have to pay even more attention to funding their pension plans to ensure a decent retirement income.

Stalwart Assurance, based in Dorking, Surrey, is offering to pay bigger pensions to people who are overweight, have high blood pressure, high cholesterol or diabetes. The idea is that these people are likely to die sooner and therefore be drawing a pension for fewer years. So in the meantime they should get a higher pension for the equivalent amount of savings.

To get a higher pension from Stalwart you would need to be at least 30 to 50 per cent overweight. For example, Stalwart says the normal weight for someone who is 5ft 10ins is 12 stone; to qualify for its higher pension you would need to weigh at least 15st 7lb at retirement.

Mike Fuller, Stalwart's managing director, says: "We are simply reversing the principle that people with lifestyles that may reduce their life expectancy have to pay higher premiums for life assurance. If, on average, they are likely to have a shorter life expectancy, it follows they should receive a higher pension each year to compensate."

Overweight people approaching retirement might even be tempted to put off a diet or a new exercise regime. "Keep eating those jam doughnuts, at least until you have got your pension," says Billy Burrows of Annuity Direct, a firm of spec-ialist financial advisers in London.

This kind of advice goes against the grain in the financial services sector. The various types of health-related insurance - life, critical illness (which pays out for serious conditions), permanent health (in effect, private sick pay) and private medical cover - can be expensive or unobtainable for some people, even when the extra health risk they carry seems minor.

With pension plans, however, Stalwart has simply refined an established formula to offer a better deal to these people.

The potential benefit comes on retirement. With the proceeds of all personal pensions and more and more company pensions, you are required to buy an annuity - an annual pension which pays out until you die. The amount of income you can buy depends on life expectancy, as well as the accumulated value of your pension plan. A 60 year old will get fewer pounds of annuity than a 70 year old for a plan worth the same amount because, on average, the 60 year old has more years to live. At any given age, women are expected to live longer than men, so they get lower annuity rates too.

Under the formula applied by Stalwart, a 60-year-old man buying the company's standard annuity will get an annual pension of pounds 5,143 if he has saved a total of pounds 50,000 in his pension plan. But the enhanced annuity for fatties will pay pounds 5,661 - around 10 per cent more. The pounds 50,000 pot will buy a 60-year-old woman pounds 4,692 under Stalwart's standard annuity, and pounds 5,136 under the enhanced version. In each case, the company claims that its enhanced rates are also higher than the standard rates from other firms.

Since last September, Stalwart has also been offering its discretionary deal to smokers.

If more companies follow Stalwart's lead, the flipside of better rates for fatties and the like could be worse rates for "normal" people. Meanwhile, a steady improvement in the general health of the population and a consequent increase in life expectancy will have the long-term effect of eroding annuity rates overall. This, in turn, means that many people might have to save much more to ensure a decent pension.

In the meantime, those nearing retirement should remember the importance of shopping around for the best income. With most pension plans, the "open market option" means you don't have to buy an annuity from the same company with which you took out the plan. So the overweight should now at least get a quote from Stalwart. But even with standard annuities, the income you can buy varies hugely. "Shopping around for the best annuity can increase your pension by as much as 25 per cent," says Mr Burrows.