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How much annuity income your client receives, depends on the size of their investment, current annuity rates, what product options they choose and their personal circumstances, including age, health and lifestyle factors.
That’s why it’s so important for clients to be honest and open about their lifestyle choices and their existing or previous health conditions. Unlike other insurance products, having health conditions or lifestyle habits such as smoking, has the potential to give clients a better annuity rate and therefore boost income. In the case of critical conditions, this could be up to 40% more1.
With annuities, many health and lifestyle factors have the potential to provide clients with an ‘enhanced’ annuity rate, which will be better than a ‘standard’ annuity rate. Standard rates only tend to take age and interest rates into account, whereas an enhanced annuity looks at a wide range of factors that affect your client’s longevity. For example, if your client smokes 20 cigarettes a day, they’ll benefit from a higher income than a non-smoker with the same amount to invest. This is because the annuity provider is ‘betting’ on their reduced life expectancy.
It’s important your clients understand the difference an enhanced annuity can make to the income they receive each week, month or year. They need to be open and honest about their lifestyle and health – there’s no need to be embarrassed or shy about discussing their health in this situation. Providers will not judge the client or pass comment. In fact, the more the provider knows about their lifestyle, the more likely they are to get the best rate for their circumstances.
Smoking is one of the most significant factors to impact a client’s annuity rate. The number of cigarettes or cigars they smoke on a daily basis, or the amount of tobacco they use in a pipe or in rollups each week, will affect the rate that providers offer. Even if your client is an ex-smoker, they can still benefit from a higher rate. Providers will want to know what and how often the client smoked, when they started and when they stopped, if relevant.
Providers will want to know how many units of alcohol the client drinks each week. The number of units contained in each glass or measure can normally be found on the label, but there are also a number of internet calculators and guides, that can help the client work out how many units they’re consuming. These include Drinkaware and the NHS.
Body Mass Index
Annuity providers use the Body Mass Index calculation, which is based on weight and height measurements, to determine if someone is overweight, a healthy weight or underweight. So your client will need to know how much they weigh and how tall they are.
Clients should be honest about all these lifestyle factors when buying an annuity. There are checks and balances in place, to ensure that people don’t exaggerate the amount they smoke or drink in order to get a better rate. However, it’s far more common for clients to deliberately understate their alcohol intake or the number of cigarettes they smoke, for fear that disclosing these factors will adversely affect them. Reassure your client that, when it comes to annuities, the opposite is true. Being honest about their lifestyle habits, will mean they’ll get the best rate they can, based on their lifestyle.
Clients can believe that disclosing an underlying medical condition will reduce their income, or even cause their application to be rejected, so may need to be reminded that this simply isn’t the case.
Clients should disclose the full history of all medical and health conditions. More serious conditions, such as cancer or diabetes, can have the biggest impact on providing a higher rate.
Most annuity providers will look at a range of conditions including:
Common medical conditions, such as high blood pressure and high cholesterol, can be risk indicators of potentially more serious diseases, such as heart attacks and kidney disease. Disclosing these can also often mean the client will get better returns on their annuity income.
If your client suffers from a condition, they’ll need to disclose some key details, including the date of diagnosis and any current medication they’re taking. Depending on the condition they have, they may also need to give their latest blood pressure or cholesterol reading.
Even if the client suffered from a particular disease in the past, or they feel they’re managing the condition well through medication or treatment, it’s still in their best interests to disclose their medical history and provide as much detail as possible.
Different providers offer different rates, so it pays to shop around to find the best rate for each client. Even a small difference in rate could mean hundreds, or even thousands, of pounds’ additional income for your client during their retirement. Providers also now have an obligation to show clients how they compare to others in the market, and this additional information may act as a useful conversation trigger to discuss enhanced rates with clients.
Clients may not be aware of all the income and legacy options available to them from the various annuities in the marketplace. If clients want to leave something behind, either as an inheritance or as income for a partner, or provide an income for a guaranteed period of time, then these things are possible, although the cost of them will affect how much income is returned to the client over time.
Clients can also choose whether they want their income fixed at a guaranteed rate, or to see it rise in line with inflation, allowing them to keep up with rising living costs.
Things for you and your client to consider.
Pension annuities don’t have a ‘cash-in’ value and the total income paid from your client’s annuity could be less than the amount they used to buy it.
It's a once and for all decision. Once their annuity is in payment your client can't change any of their payment options, even if their circumstances change.
1Moneyfacts.co.uk. 2018. Guarantee your retirement income with an annuity – Personalise your annuity to suit your needs and shop around for a better rate today. Available at: https://moneyfactscompare.co.uk/retirement/annuities/ [Accessed 3 October 2018].
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