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Impaired Life Annuities (Enhanced Annuities)

You may qualify for an impaired life or enhanced annuity if you are..

  •  in poor health
  •  smoke
  •  overweight
  •  or live in certain postcode areas

... this is due to a shortened life expectancy. If you qualify for an impaired life annuity then you could expect to receive up to 30% more income depending on the severity of your condition(s). 

Why does life expectancy affect annuity rates?

To explain this we must consider how annuities actually work...

The proceeds of your pension fund are combined with other people's funds - we call this an 'annuity pool'. The pool is invested, although very conservatively in order to protect it from sharp falls in value otherwise it may be unable to meet future payments. With low investment risk comes low returns - these returns are not sufficient to meet all of the income payments made, so the fund gradually falls in value. Knowing when the fund will run out of money is very important - this is intrinsically linked to life expectancy.

The life assurance company providing the annuity needs to know how long the pool must last. Life expectancy data is used to determine this; the average man may be expected to live to age 85 and the average woman to age 87. Even though some people will longer, others will not so the funds from those that die before expected are used to fund those people that live longer than expected.

Over many years new money and members are introduced to the fund and older pool members die, this cycle continues and goal posts move as life expectancy and investment returns constantly change.

Some life assurance companies have moved this on a step; they decide to have pool members made up only of those people expected to prematurely. The result is that the pool of money does not have to be paid for as long and so more money can be paid to the pool members.

If certain people are moving their pension funds to impaired life annuity pools then this affects the standard life annuity pools; less unhealthy members means that the average life expectancy of the pool is increased, the fund has to last longer and a lower annuity payment must be made. As more people become aware of impaired life annuities we are likely to see annuity rates fall for healthy people.

If you think that you may qualify for an enhanced annuity then please contact us. We can gather the necessary information to determine which annuity providers might be able to offer you a higher income.