8th February 2011

Annuitas: To be or not to be... in good health

When we think about life and health products, our state of health is very high on the agenda.  A clean life insurance application will ensure that our premium isn’t loaded and when we consider private medical insurance, not only does a clean application keep our premiums down, we avoid any exclusions for pre-existing conditions. 

However, being British we tend to put on a brave face and stiff upper lip when asked about health and assume a simple “I’m fine thanks” is always the best response. We have been conditioned to think that good health is always best and that reference to anything that indicates otherwise should be avoided.

What many fail to appreciate is that as we approach retirement and start to look at annuities for income an honest declaration of our health and lifestyle will, in many instances, greatly increase the income we receive.

Recent research by Just Retirement suggests that between 55% and 65% of people due to retire may have conditions that qualify them for Impaired or Enhanced life annuities with alcohol consumption and obesity levels surprisingly high in the over 55 age group – exactly the age group who are being advised their retirement income options.

Since its initial launch in 1996 the Impaired and Enhanced annuity market has grown significantly but still only accounts for 16% market share and significantly below the potential figures highlighted above. Many lifestyle and medical conditions, past and present, can significantly increase annuity rates with, according to the survey, 56% of people aged between 65 and 74 reporting a long-standing illness and 33% reporting a debilitating long-standing illness.

Perhaps I should begin by clarifying exactly what we mean by Impaired and Enhanced annuities:

Impaired

An impaired-life annuity pays out more to people with particular health problems (anything from high blood pressure to a triple heart bypass) and is based on the individual's circumstances. Specialist providers look at your personal situation in detail. For example, two people who have both had a heart attack could still receive different levels of increase depending on the type of attack and when it occurred.

Enhanced

An enhanced annuity is less tailored than an impaired-life annuity and pays a higher annuity rate to those with particular lifestyles, including smokers and the obese. Providers take the view that, as you're unlikely to live to a ripe old age, they can afford to pay you more while you're still around.

A number of factors are considered when assessing your eligibility for an enhanced annuity, including your health, lifestyle, smoking habits and in some cases the postcode area you live in. While the smoker annuity is relatively well known, many may still not be aware of the effect that high alcohol consumption, obesity, high blood pressure and high cholesterol can have on the annuity rate.

So to put some numbers and perspective around this subject, let's look at the biggest health risks in the UK:-

• Heart Disease

The UK’s biggest killer – cardiovascular disease is responsible for 38% of deaths in the UK.  The positive news though is that new figures have revealed the number of people dying from coronary heart disease fell by 28% in men and 32% in women between 2004 and 2009 (Source: British Heart Foundation).

The statistics from the Office for National Statistics also showed that between 1999 and 2009, deaths from circulatory disease in men fell by 42%. The figure for women fell by 40%.

• Cancer

There are around 298,000 new cases of cancer (excluding non-melanoma skin cancer) diagnosed each year in the UK, and more than 1 in 3 people will develop some form of cancer during their lifetime (Source: Cancer Research UK).

Between 1978 and 2007, incidence rates for cancer in Great Britain increased by 25%, with a 14% increase in men and a 32% increase in women. However, in the last decade incidence rates have remained fairly constant.

There are more than 200 different types of cancer, but four of them - breast, lung, large bowel (colorectal) and prostate - account for over half (54%) of all new cases. Breast cancer is the most common cancer in the UK even though it is rare amongst men.

• Diabetes

The number of people diagnosed with diabetes in the UK has increased by more than 150,000 to 2.8 million in the past year (Source: Diabetes UK).

Around nine in ten people with diabetes (2.5 million) have Type 2 diabetes, which is strongly linked to being overweight or obese, leading a sedentary lifestyle and eating an unhealthy diet – not always the case though as Sir Steve Redgrave, five times Olympic gold medallist, is Type 2 and can hardly be described as having led a sedentary lifestyle.

The data, collected from GP practices, also show the nationwide figure of people registered as obese to have risen to over 5.5 million, an increase of more than 265,000. This now means one in 20 of the population is being treated for diabetes and one in ten for obesity.

• Obesity

The number of people admitted to hospital for obesity-related illnesses has shot up by more than 10 times in the last decade.  Statistics from the NHS Information Centre show there were 10,720 admissions last year compared with 1,000 in 1999.

So how does this impact on the advice process?

Having spent an entire working life advising clients how best to accumulate capital, the correct advice on their retirement options is vital. If you thought that deciding on which investment house, fund manager and tax wrapper to choose from was fraught with risk, an involvement in the purchase of retirement income without a full understanding of the Impaired and Enhanced annuity market is doubly so.

Declared conditions at retirement can significantly increase a person’s income with a moderate medical or lifestyle condition meaning a difference of some 40% income, whilst a severe condition will provide a much greater increase (Source: Just Retirement).

For example, Mr. Smith is 65 years old, in good health with a retirement fund of �£100,000. If he purchased a conventional annuity the best rate available would secure him �£7,151 per annum. This in itself is greatly improved through seeking advice as the lowest annuity rate would have provided income of �£900 less than this figure. However had Mr. Smith been a regular smoker then he could have secured an enhanced annuity and seen his income rise by nearly �£1,600 per annum.

In case you are thinking of taking up smoking just before applying for an annuity and giving up immediately afterwards, the definition of a smoker is typically someone who has smoked 10 cigarettes a day for a minimum of 10 years.

Annuity specialists, like Annuit�£s, ensure everyone has the opportunity to benefit from these rates and specialist advice.  It is important to recognise that a client might be reluctant to complete a lengthy questionnaire so we will assist clients with the completion of all relevant details to achieve the best possible increase. The more accurate the detail, the more aware of medical issues the adviser and their support team are, the better the rate and subsequent income level will be.

Over 1,500 conditions count towards Impaired and Enhanced annuity qualification and the sophistication of underwriting by specialist annuity providers has improved dramatically over the past six or seven years.

Many people who use the internet to compare annuity rates will not appreciate that such comparison sites are only using conventional annuity tables and therefore the benefit of an Impaired or Enhanced annuity can be missed. There are nine specialist annuity providers in this market but many people will be unaware of their existence and unless they seek advice and guidance will not understand the significant loss of income until it is too late.

Annuit�£s are committed to helping as many clients as possible in achieving the best annuity rate on the market.  It is not unusual for us to get a better rate from even the ceding provider if we gather the relevant lifestyle and health details. Last year over 40% of our clients benefited from these increased rates.

Annuit�£s is a trading name of Origen Financial Services, one of the largest annuity specialists in the UK and a market leader in the Impaired and Enhanced sector.

For more information about our Retirement Service, click here

Investments, Retirement