Annuity rates and poor health

Annuity rates are currently under real pressure.

QE, part of the Government plan to deal with the huge national debt that we have, has driven up the price of Gilts and driven down Gilt yields.

Annuity rates are closely correlated with Gilt yields and thus buying an annuity today is a very sensitive decision.

Further pressure on annuity rates is likely.

From 20th December this year a European Court decision will mean that annuity providers will not be able to discriminate between men and women – women tended to have lower annuity rates than men because statistically they lived longer (and thus the annuity had to be paid for a longer period of time).

As a society we are typically living longer and therefore again further pressure is being placed on the level of annuity that might be provided for any given capital sum.

However there is one positive bit of news (strangely it is bought about because of some negative news) in that individuals with a poor health history may actually qualify for a better annuity rate than those of average or standard health.

Impaired life annuities are provided by a range of product providers who will ask potential annuitants to complete a medical questionnaire and if their health history and state of health means that they are likely to have a reduced life expectancy they may be offered an enhanced rate.

Depending on the severity of a pre-existing medical condition this may result in a significant uplift.

So the bad news is that you may have a reduced life expectancy but the good news is you may have a higher retirement income whilst you live.

Many people who have pension plans that are converted into income by buying an annuity not only fail to look further than the provider of their pension plan (you should always consider exercising what is known as an “open market option” to see if you can get a better annuity rate from another provider) but you should definitely find out if you are entitled to an impaired life annuity.

By the way if you are smoker you are also likely to benefit from an enhanced annuity rate as well. Your adviser will always ask you questions to find out if you might get such an uplift.

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