How you can boost your retirement income
If you're nearing retirement, choosing the right annuity could be the most crucial decision you make. An annuity is the product you buy with your pension savings, which then pays you an income for the rest of your days.
Pick the right one and you can look forward to a retirement with the best income possible; pick the wrong one and you'll be stuck with an income that doesn't reflect your years of saving.
At present, annuity rates are hitting all-time lows due to falling stockmarkets and gilt yields, so it is more important than ever to secure the best possible rate. One way to do this is with an enhanced annuity.
What is an enhanced annuity?
People who have poor health or aren't expected to stay healthy for long, for example, smokers or asthmatics, are able to buy enhanced annuities (also known as impaired annuities).
As the policyholders aren't expected to live as long as healthy pensioners, insurance firms pay out a much higher income - as much as 37% more than a standard annuity, explains Jim Boyd, director of corporate affairs at Partnership, an enhanced annuity provider.
But although around 60% of pensioners are eligible for an enhanced annuity only 19% have one, according to annuity firm Just Retirement.
Who can get an enhanced annuity?
Enhanced annuities are intended for people with medical maladies that shorten their life expectancy, but that doesn't mean you need to be decrepit to qualify for one.
Eligible issues range from serious conditions such as cancer or diabetes to minor complaints associated with drinking and smoking.
Someone who drinks slightly more than they should or who smokes may be prone to an array of ailments, including high blood pressure and high cholesterol.
Admit all these vices when you are hunting for an annuity and you could boost your income by as much as 20%, says Stephen Lowe, consumer insight director at Just Retirement.
How do I get one?
When you are talking to your pension provider about buying an annuity, make sure you're asked three important questions: are you on any medication; have you spent time in hospital in the past five years; and how much do you smoke and/or drink?
As well as talking about your medical problems, admit to every bad habit - whether it's a glass of wine with dinner or a cheeky cigarette on a Friday night. It could all help you boost your retirement income.
And remember, you don't have to buy your annuity from your pension provider - you're entitled to shop around for the best rates.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.