What is an Enhanced Annuity?

Over the last year or so the Annuity market in Ireland has seen a bit of a shake up with the introduction of Enhanced annuities for the first time, but what exactly are they? why might they be relevant to you if you’re approaching Retirement?

Firstly, what exactly is an enhanced annuity? An enhanced annuity is the same as a standard annuity, except that it takes into account your health status and lifestyle health risks (e.g. smoking) in determining the level of regular income payable to you. With an enhanced annuity you may be entitled to a higher regular income than you would under a standard annuity. Unlike with traditional insurance applications where medical conditions may go against you, with an Enhanced Annuity if you have an underlying medical condition (or some lifestyle factor such as smoking) this will lead to you getting a better deal.

Enhanced Annuities are aimed at people who suffer (or have suffered) from illnesses such as cancer, a heart condition or stroke. They are offering annuity rates up to 30% more, depending on the person’s age and medical history. It’s not only serious conditions that can lead to a better annuity rate though, someone who is overweight or a smoker may also get favourable terms.

After all, why should a 65 year old with a serious heart condition get paid exactly the same rate as a person of the same age with no compromising health issues. Life expectancy is one of the main dictating considerations in calculating annuity rate risk and this unique annuity addresses that issue. In the UK market, almost one in four annuities are “enhanced”.

They say that if you reach age 65, the average male will live to be 81.6 and the average woman will live to age 84.8. Of course, to come to the average you take all the healthy people and all the not so healthy people and come to a number somewhere in between. Enhanced annuities are aimed at the not so healthy people who are not expected to live to 81.6 or 84.8 respectively.

Annuities do have a place in the market, especially for those who want certainty over their income in retirement but it is important you explore all of your post-retirement options with an Independent Financial advisor.

Barry Kerr BBS QFA CFP® is the owner of Wealthwise Financial Planning, Bridge St, Carrick on Shannon, www.wealthwise.ie. Barry Kerr T/A Wealthwise Financial Planning is Regulated by the central Bank of Ireland. All details and views contained within this article are for informational purposes only and does not constitute advice. Wealthwise Financial Planning makes no representations as to the accuracy, completeness or suitability of any information and will not be liable for any errors, omissions or any losses arising from its use.