Enhanced annuity customers get 22% more - study

Enhanced annuities pay out an average 22% more than standard annuities in annual retirement income, research suggests.

According to life assurer MGM Advantage's Annuity Index, a man retiring at 65 with a pension pot of £50,000 would receive an estimated £3,575 extra for the first five years of retirement - £715 each year - if he qualified for an enhanced annuity.

A woman retiring at 65 would be £3,405 better off after the first five years, equivalent to £682 extra a year, it adds.

The index tracks the income paid on standard and enhanced annuities and the data will be published quarterly.

Enhanced annuities are available to people with certain medical conditions or those prone to ill health because of lifestyle choices, such as smoking.

MGM director Craig Fazzini-Jones believes many pensioners are missing out on thousands of pounds of extra retirement income because they wouldn't consider themselves to fit that profile.

"Many people approaching retirement feel fit and healthy and wouldn't consider that they could qualify for an enhanced annuity," he says.

"Lots of medical conditions are covered, from the very minor to severe impairments.

"Indeed, there are well over 1,000 medical conditions such as high cholesterol or high blood pressure that could entitle you to a higher guaranteed income in retirement."

Nick Flynn, a director at IFA The Retirement Adviser, says two thirds of the firm's annuity business is on enhanced terms.

"This isn't because we deal with more unhealthy annuitants than your average IFA, its more around our ability to really question the client when they say they are well," he says.

"A basic health check before buying your annuity would reveal any minor health issues."

MGM's index also reveals significant income disparities between products in the top quartile and those in the bottom quartile when it comes to both standard and enhanced annuities.

On a £50,000 pension pot, MGM Advantage warns that on average, those people who choose a bottom quartile standard annuity could find themselves £2,880 worse off over the first five years of retirement.

The corresponding figure for an enhanced annuity was £3,710.