Emma Byron of annuity provider Legal & General explains why being open about your health and bad habits could leave you better off in retirement.
Buying an annuity
When it comes to annuities, taking the time to research your options and seek professional advice are both important.
But once you have decided an annuity is the right option for you, there are other things worth spending some time on.
For example, did you know that that this is one instance where smoking or carrying a bit of excess weight could actually increase the amount of money you receive?
Whilst we wouldn’t advocate pursuing these lifestyle choices, they and any existing or previous health conditions can yield significant financial benefits.
Providers will not judge you or pass comment. In fact, they will not use the information in any way other than to calculate your rate, but it may boost your income.
In the case of critical conditions, this could be up to 40% more. So, it pays to be open about your habits and general health as well as your medical history.
What is an annuity?
Annuities protect you against running out of money, but rather than one payout like insurance, you give the provider a lump sum at the start and they then pay out a regular amount to you for the rest of your life – this can be weekly, monthly or annually.
So, by giving you an ‘income’ for life, a product like a lifetime annuity protects you against outliving your retirement savings.
How much you receive depends on the size of your ‘pot’, the current interest rates, what options for the product you choose and your personal circumstances, including your age and those all-important health and lifestyle factors.
Smoking is definitely one factor that’s important to talk about with your provider or adviser before you lock into your annuity rate.
The number of cigarettes or cigars you smoke on a daily basis, or the amount of tobacco you use in a pipe or payoutrollups each week, will not only have an impact on your health: it will also impact on the rate that providers offer you.
Even if you’re an ex-smoker, you can still benefit from a higher rate. In these cases, providers will want to know what and how often you smoked, and when you started and stopped.
Providers usually ask how many units of alcohol you tend to drink each week.
The number of units contained in each glass or measure can normally be found on the label, but there are also a number of internet calculators and guides that can help you to determine what the figure might be. These include Drinkaware and the NHS.
When making a decision, annuity providers will also take into account your BMI (Body Mass Index) and they calculate this using your weight and height measurements.
So, it’s not only important to know what you weigh, but also how tall you are.
You should always be upfront and honest about all of these factors when buying an annuity. There are checks and balances in place to ensure that people don’t exaggerate the amount they smoke or drink in order to get a better rate.
However, it’s far more common for people to deliberately understate their alcohol intake or the number of cigarettes they smoke for fear that disclosing these factors will adversely affect them.
That simply couldn’t be further from the truth when it comes to annuities: it will simply mean you get the best rate you can, based on your life.
You might also think that disclosing an underlying condition would reduce your income or void an annuity application but, again, this simply isn’t the case.
More serious conditions such as cancer or diabetes can have the biggest impact on providing a higher rate. Most annuity providers will look at a range of conditions including the following:
- Heart disease
- Lung disease (e.g. emphysema)
- Neurological disease (e.g. dementia; multiple sclerosis)
- Kidney and liver disease
- Depression and other affective disorders
Common medical conditions such as high blood pressure and high cholesterol can be risk indicators for potentially more serious diseases such as heart attacks and kidney disease.
Disclosing these to your adviser, or to the company you are buying your annuity from, can also often mean you’ll get better returns on your annuity income.
If you suffer from conditions like these, you’ll need to disclose some key details, including the date of diagnosis and any current medication you are taking. Depending on the condition you have you may also need to give your latest blood pressure or cholesterol reading.
Even if you suffered from a particular disease in the past, or feel you are managing the condition well through medication or treatment, it’s still in your best interests to disclose your medical history and provide as much detail as possible.
What else should I consider?
Whatever your circumstances, when buying an annuity you should look at different providers to find the best rate.
Providers now have an obligation to show you how much more money you could get if you shopped around, and this includes if you buy an annuity from your current pension provider.
It might only look like a small difference in rate, but you should bear in mind it could mean hundreds, and maybe even thousands, of pounds across your retirement.
Considering whether you want to leave your partner or family any money is also important, as is whether you want your annuity income to keep up with inflation.
You can also provide for your partner to have their own income from your pension fund with a ‘joint life’ annuity.
However, all these options will reduce the amount of annuity income you receive so you should think carefully about whether you really need this. For example, your partner might already have sufficient retirement provision.
With so many variables to consider, it’s a good idea to speak to a financial adviser about your situation in detail, as well as your requirements and plans for retirement.
Whether you go through an adviser or purchase an annuity direct, be sure to prepare well beforehand and have all your details to hand, for example, the name and amount of medication you take.
And be honest with yourself and your provider about your lifestyle choices as well as your health.
If you want to learn more about annuities, or retirement planning in general, read this comprehensive guide to pensions.
Emma Byron is the managing director of retail retirement income at Legal & General. The views expressed in this article do not necessarily represent those of loveMONEY.
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