We are always seeking ways of helping you make your life more comfortable in retirement. Your teacher’s pension scheme may offer you a generous pay out in retirement. However, when life is challenged by ill health when we retire, we could face extra expense. Are there ways you could qualify for an extra income in retirement?
What is an enhanced annuity?
An enhanced annuity is a means of boosting your income by giving the private pension provider details of your ill health. This might sound counter-intuitive, as we tend to think blood pressure levels, smoking status or alcohol consumption could be penalising factors in financial products. However, it is possible that your annuity company could conclude that your income should be higher as you will not require the payments for as long.
This enhanced annuity is sometimes called an enhanced annuity. Some pension providers offer this retirement product to people with illnesses that will curtail the length of their life.
At the age of 55, you can access 25% of your pension pot tax-free. You can use the rest of your pension in many ways, one of which is to purchase an annuity. When purchasing an annuity, you are converting your pension into a regular income for the rest of your life or a set period. An enhanced annuity product is designed for those who have a shorter than average life expectancy.
Could you qualify for an enhanced annuity?
Many conditions could potentially qualify you for an enhanced annuity. There are different types of annuities offered by different provides. You could choose an enhanced annuity over a lifetime annuity, if you meet a set of criteria. The presumption is that if you have been a smoker, or still are, if you are overweight or have been in the past, or you have spent a portion of your life working in hazardous conditions, that you may have a shortened life. By applying for the enhanced annuity, you would receive a higher annuity rate than on a lifetime annuity. You will be asked additional questions before being given the opportunity to purchase an enhanced annuity.
New FCA rules
In 2016, the Financial Conduct Authority (FCA) estimated that between 39% and 48% of people had a standard annuity when they qualified for an enhanced annuity. New rules will come into effect in November 2019 that require companies to ask customers if they are eligible for an enhanced annuity. The information provided by the customer should then be used to generate a more generous quotation from the company.
The hope is that these new rules will prevent people from losing out on money that could significantly boost their retirement income, at a time when they would want to be making the most of life.
The content in this article was correct on 22nd April 2019. You should not rely on this article to make important financial decisions. Teachers Financial Planning offers advice on pension products. Please use the contact form below to arrange an informal chat with an advisor and see how we can help you.