Enhanced Annuities

I got notification today from Aviva Ireland that they are to introduce enhanced annuities to the Irish market. What this means is if you come to retirement and you have a medical history that would result in an expected lower life expectancy you can get an increase from the standard rate of annuity (pension income) than that of a healthy person the same age.

According to Aviva in some cases you could get an increase of up 30% depending on your age and medical history.

If you are reaching retirement and for whatever reason are planning on taking an income for life via an annuity rather than the A(M)RF route and you have a medical history this is potentially great news for you.

However if you are a healthy individual planning on taking an income for life (annuity) I believe this is bad news for you.

The reason for this is that how much of an income you get is based around how long the life companies expect to have to pay an income to the entire group of people who take annuities out with them. Some people will live well into their 90’s and the annuity will have been a great bet. Some people will die soon after taking out the annuity and the life company will be “quids in”.

This balance, combined with long term interest rates etc results in the prevailing annuity rate or in other words determines how much income everyone will get.

But if enhanced annuities become common place here like they are in the UK it means our market will take all the “quids in” people put them over to one side and treat them differently. this will leave all the “healthy” people who are expected to live longer determining what annuity rate will be paid out.

Complicated I know but basically enhanced annuities skew the balance resulting in higher income for people with shorter life expectancies and much lower incomes for those who are considered healthy.

I am delighted for my “sick” clients who are planning on going this route, but concerned for my healthy ones.

These are my views, if you have an opinion whether you are a professional within the industry or a consumer with an opinion I would really appreciate if you would use the comments section below or contact me on eoin@prosperous.ie

Comments 1

  1. Vincent brett

    Eoin Interesting blog.I do not know what has been the experience in other countries. One thing I would say is that in the example Aviva use of a 65 year old smoker,over weight man who had a heart attack is still only getting a 10 % “bonus”. Not too generous in my opinion given that his life expectany should hardly be that great . I am not a medical person but I would have thought his life exppectancy would be probably half or less that of a full fit healthy person and why would he not opt for an ARF then? I think they may be trying to grab those, who would go for the ARF and make more profit on the impaired annuities but then I could be all wrong.

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