Can I get a higher pension annuity if I have health problems?

Full answer

An enhanced annuity, sometimes called an impaired-life annuity, gives a higher guaranteed lifetime income than a standard annuity bought with the same defined-contribution pension pot. Annuity pricing is based on life expectancy: the longer the provider expects to pay you, the lower the annual income. If your health or lifestyle suggests a shorter-than-average life expectancy, the provider can offer more income because it expects to make payments for fewer years. Qualifying factors range from common lifestyle ones - smoking, being overweight, high blood pressure or high cholesterol - to more serious medical conditions such as diabetes, heart disease, stroke, cancer or chronic lung conditions. Even your postcode and occupation can influence the rate. The more significant the condition, the larger the uplift, which can be substantial - often a double-digit percentage increase over the standard rate, though exact figures depend entirely on your circumstances and the provider. Who it affects: anyone using a defined-contribution pension to buy a guaranteed income, typically from age 55 (rising to 57 in 2028). You usually take your 25% tax-free lump sum first, then use the remaining pot to buy the annuity. The income you receive is taxable as earned income at your marginal Income Tax rate (20%, 40% or 45%). The key practical step is to disclose your full medical and lifestyle history and to shop around using the open market option rather than simply accepting your existing provider's standard quote - many people lose out by not declaring conditions or not comparing offers. An independent annuity broker or financial adviser can gather quotes from multiple insurers. Worked principle: if a 100,000 pot buys a standard annuity of, say, 5,000 a year, a 15% enhancement would lift that to about 5,750 a year for life. Once set up, the income is generally fixed (unless you choose inflation-linking or a spouse's pension, which lower the starting amount). Use the pension calculator to model your pot, and the income tax calculator to estimate tax on the annuity income.

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