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Enhance your pension income by 40%
By Rebecca Atkinson
Pension pots have been hit hard by the impact of the credit crunch, but thousands of retirees could boost their retirement income by as much as 40%.
An annuity, which many pension savers must buy before or when they hit 75, provides you with an income from your pension for life. However, in recognition of the fact that some people have a shorter life expectancy than other, providers are increasingly offering people in poor health enhanced payments from their annuity.
These so-called enhanced annuities take into account any medical or lifestyle conditions you have that could reduce your life expectancy. Your monthly income from the annuity will be increased to take this into account.
However, according to experts, many people who could qualify for an enhanced annuity are failing to declare their medical or lifestyle conditions to their pension provider - and are therefore being offered lower incomes.
Nigel Callaghan, pensions analyst at Hargreaves Lansdown, believes that around 10% of retirees could qualify for an enhanced annuity, which could boost their income by around 40% each year.
"It might seem counter-intuitive, but buying an annuity is one financial situation where it really pays to stress one's frailties," he says.
Figures from annuity provider Just Retirement show the benefit of declaring your medical or lifestyle conditions to your pension provider.
It estimates that a 65-year-old man with a £50,000 pension could receive an annual income of between £2,917* and £3,539 on a standard annuity.
However, he could boost this retirement income to:
* £3,863 if he has diabetes
* £4,219 if he has suffered a heart attack requiring surgery and medication
* £4,458 if he has had a more severe heart attack with high blood pressure and high cholesterol
A 60-year-old woman, meanwhile, also with a £50,000 pension pot could expect to receive between £2,402 and £3,067 annual annuity income.
She could boost this income to:
* £3,260 if she has diabetes
* £3,465 if he has suffered a heart attack requiring surgery and medication
* £3,550 if he has had a more severe heart attack with high blood pressure and high cholesterol
Nigel Barlow, head of research at Just Retirement, says: "The disparity between the income people could receive highlights the importance of shopping around for an annuity, rather than just accepting the one offered to you by your pension provider, and the importance of declaring any medical conditions."
If you are buying a joint annuity with your spouse or partner, then you should also make sure you shop around and declare any medical conditions either of you suffers, and this could also increase your annual income.
The most common medical conditions that qualify for an enhanced annuity include diabetes and heart attacks, as well as asthma, breast cancer, anginas and strokes. According to Barlow, a smoker with an associated health condition could receive a 40% enhancement.
* all figures correct at the time of writing (19 August 2009)
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