Up to 40% of people retiring could be eligible to receive a bigger pension by considering an impaired life or enhanced rate annuity, instead of a standard rate annuity, claims Bank of Scotland Annuity Service (BOSAS).
Those qualifying for an impaired life annuity because of illness can get up to 39% more, which for a pension fund of £100,000 could result in up to an extra £2,500 each year, it says.
When buying a conventional annuity providers use standard rates to estimate how much pension income they will offer to an individual in retirement based on life expectancy. But, impaired life or enhanced rate annuities are available to those suffering with a number of medical conditions, including ongoing conditions such as diabetes, high blood pressure and high cholesterol as the assumption is that life expectancy will be reduced..
The Association of British Insurers estimates that only 1 in 10 of those retiring currently opt for an enhanced annuity but BOSAS says many more people could benefit from enhanced annuities if they use the open market option (OMO) to shop around for the best deal.
When buying an annuity, everyone has the legal right to an OMO, in effect the right to shop around and get the highest annual income from their pension fund, but currently only one third use this option. BOSAS argue using the OMO can make a huge difference to the total pension income a person receives and the added prospect of an impaired life or enhanced rate annuity could increase this further.
Craig Jones, head of BOSAS, says: "When the time comes to retire the main concern for the majority of people is the amount of pension income they will receive and how they will manage on a reduced income. Therefore you would expect that most people would want to make sure that they get the pension deal possible.
"The Open Market Option means that you don't automatically buy an annuity from your pension provider but use an annuity broker to find the best deal. To get the best deal it's essential to ensure the annuity broker is aware of any medical history which could lead to a greater pension income."
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