Glossary · UK
What is Enhanced Annuity?
A type of pension annuity paying a higher guaranteed income because the holder's health or lifestyle suggests a shorter-than-average life expectancy.
Full Definition
An enhanced annuity is a retirement income product bought with pension savings that pays a higher rate than a standard annuity because the provider expects to make payments for fewer years. When you buy an annuity you exchange your pension pot for a guaranteed income for life, and the insurer prices it on your estimated life expectancy. If you have a qualifying medical condition - such as diabetes, heart disease or high blood pressure - or lifestyle factors like smoking, you may be offered an enhanced rate, sometimes called an impaired-life annuity. This matters because the uplift can be substantial, so disclosing health details fully and shopping around using the open-market option can materially increase lifetime income. The first 25% of most defined-contribution pots can usually be taken as a tax-free lump sum, with the annuity income then taxable as earnings. Annuities suit those wanting certainty, but the income is generally fixed and cannot be reversed once purchased.