Impaired life annuities could offset ‘unfair' rises in state pension age for groups with lower life expectancy, the pension minister has said.
State pension age (SPA) is set to increase to 67 in the UK between 2026 and 2028 and the government is considering an automatic up-rating system that links SPA with increases in longevity.
Steve Webb said increases in SPA could be viewed as unfair for people who will not see their life expectancy rise as quickly, but argued this could be “offset” through impaired life annuities.
He said: “Whenever people put SPA up, someone comes along and says that is not fair because there will be variations in life expectancy, which of course there are.
“But as defined contribution (DC) becomes a bigger part of the mix, the very people that lose out through increases in SPA potentially get a better deal through an impaired life annuity through DC.
“So if we can make sure that people who buy DC pensions are getting a pension that reflects their individual circumstances, far more than is the case now, we will help offset necessary change going on around the world.”
The pensions minister said impaired life annuities are an “undersold merit” of DC and would create a fairer system.
The specialised annuities pay people with medical conditions such as diabetes or heart conditions a higher income in retirement because they have lower life expectancy.
Adding $246bn in AUM
Plus worked example
Risk-profiling tools have provided a framework for advisers to manage client expectations but, writes Chris Fleming, key issues persist that have varying levels of implications for advisers and clients
100 new clients
Achievements, charity work and other happy snippets