People who are coming up to retirement have to become much more savvy in their choice of pension products as rates on normal annuities continue to fall in the current economic downturn.
This is because of two main reasons the fact that Interest rates are at historic lows and retired people are living for much longer. These factors are resulting in a large increase of enhanced life annuities which pay increased annuities to those who for example, smoke, are over weight, or have some other medical condition that may impair their life expectancy.
It has been estimated that sales of enhanced annuities will continue to increase by more than 20% on an annual basis and that they currently account for some 17% of the current market share.
It is not at all surprising that those who are nearing retirement are having to maximise the return on their pension investments.
In 1997 the then Chancellor of the Exchequer Gordon Brown did away with the ability of pension finds to reclaim the tax paid on their invest income from stock exchange investments. It has been estimated by independent research that Gordon Brown’s notorious “pension stealth tax” has reduced the value of retirement funds by at least £100 billion.
This minboggling fogure is more than twice as much as the combined pension deficits of the country’s 350 biggest companies.
The total current and future impact of Mr Brown’s move — known technically as the abolition of Advanced Corporation Tax (ACT) relief — has been calculated by Terry Arthur, a fellow of the Institute of Actuaries, in a paper that he has written for that professional body. Mr Arthur said: “What happened in 1997 represented an enormous and ongoing raid on the assets of UK company pension schemes. My research shows it would be very hard to justify an impact of less than £100 billion — and even £150 billion may still be a conservative estimate.”
In addition there is the same effect to those with personal pensions in that those funds were also subjected to the same stealth tax. This has a further effect in the pension finds have considerably much less income to re-invest in the stock market so that both income and capital growth was much reduced by Gordon Brown’s stealth tax.
The effect of all of this has seen the once generous company pension schemes being scaled back and at the same time personal pension funds have been hit. At the same time Annuity rates have continued to tumble and have been on a long term decline both due to ever increasing life expectancy and falling interest rates.
In addition the policy of quantitative easing has had the effect to push gilt yields (on which annuity rates are based) to historical low yields which further reduces annuity rates.
As enhanced annuities continue to increase in their popularity there is I believe a knock on effect on the normal annuity market where rates of income offered to those in good health are continuing to fall.
You can even qualify for an enhanced annuity just based on where you live as actuarial statistics show that those living in the country can have a far higher life expectancy than those living in inner cities.
These are some of the important key points to take into account to see if you might qualify for an enhanced annuity.
Do you have any relevant medical history if so you should make these known to your proposed annuity provider to see if you can qualify for an enhanced annuity.
How healthy is your life style? You should advise your proposed annuity provider if you are over weight, if you smoke ,if you drink and do you have high blood pressure are some of the points to consider.
Those who are retiring and do not qualify for an increased annuity on health grounds are having to face the fact that the average expectation of life is continuing to increase. Naturally you would expect with the ever increasing increases in life expectancy those who are healthy will see annuity rates continue to fall at a ever greater rate.
Therefore it is clearly important for you to check to see if you qualify for an enhanced annuity. What ever you do you must not approach retirement with out considering as to whether you may be able to claim any enhanced benefit as just a small percentage increase could prove to be very valuable over a number of years.
Lastly, as with any substantial purchase, you must be prepared to shop around and not necessarily accept the quote from your existing pension provider always see what is available in the open market place.
