UK retirees missing out on £56.6 million each year

UK retirees could be missing out on up to £56.6 million of retirement income each year by not purchasing an enhanced annuity, according to research from retirement specialist LV=. The LV= ‘Missing Income' report highlights that over 150,000 people could increase their income in retirement by taking an enhanced, rather than a standard, annuity.

Enhanced annuities can give people with certain medical or lifestyle conditions - for example people with high blood pressure, who smoke or are overweight - a higher level of income in retirement. This is because enhanced annuity rates are calculated individually, based on the applicant's personal circumstances.

Despite the UK enhanced annuity market growing by one third (31.9%) in 2008, this is still a long way short of the four out of ten annuitants that LV= estimates could qualify for some form of enhancement, and therefore a higher annual income in retirement.

Matt Trott, LV= Head of Annuities, said: "It's definitely a positive sign that the enhanced annuity market is growing. More people are taking up the Open Market Option, which allows them to buy an annuity from the most suitable provider for them.

"However, thousands of annuitants are still missing out on a higher income in retirement. Just 27,482 annuitants purchased an enhanced annuity in 2008, whereas our research shows that a further 150,000 people could have qualified for one. Given the current economic climate, and the fact that seven out of ten (69%) pre-retired people are now more concerned than ever about their financial security, people simply can't afford to miss out on the chance of increasing their income in retirement.

"A lot of annuitants still feel uncomfortable about revealing lifestyle or medical conditions to a financial adviser. However, if people are open about their smoking habit, or the fact that they suffer from diabetes, it will ultimately help them secure extra income for their retirement - so it's vital they are upfront about these aspects".

A 62-year-old male could receive, on average, an extra £369 in income each year from an enhanced annuity, an increase of 22.7% compared with the average income from a standard annuity. This could equate to an additional £7,380 over the rest of his lifetime.

However, whilst annuitants still need to be encouraged to be open about their medical background and lifestyle choices, it is also vital for financial advisers to inform their clients of the availability of enhanced annuities, and the benefits they can bring.

Matt Trott said: "Financial advisers should always consider enhanced annuities when they write new business, so they can be sure they are meeting individual customers' needs. This, plus more openness from people about their medical or lifestyle conditions, will help to ensure that the missing £millions end up in the right place, the pockets of ordinary people who need to maximise their income in retirement."