Enhanced annuities sales rise 24% to £1.79bn

Sales of enhanced annuities in the UK increased by 24% last year, latest Towers Watson research reveals.

The consultant says the total volume of enhanced annuity sales rose to £1.79bn last year - from £1.44bn in 2008.

It says sales reached levels of £478.8m in the last quarter of 2010 alone - significantly up from quarter three sales of £415.8m.

Towers Watson says the market share of enhanced annuity sales, as a percentage of total annuity sales, had more than doubled since 2001 - from £419.6m, a 7.8% market share, in 2001 to £1.79bn, a 16.9% share, last year.

However, senior consultant Andy Sanders warned a successful enhanced annuity market does have implications.

Sanders says: "For those lives that do not qualify for an enhancement, average expectations of life will continue to lengthen which needs to be reflected in lower levels of pension income offered.

"Furthermore, product providers, whether active in the enhanced annuity market or not, need to carefully assess the mortality assumptions in their product pricing to ensure these suitably reflect the expectations of life of the consumers seeking their products."

Towers Watson says consumer interest in taking out enhanced annuities - which provide bigger pensions for those with serious medical conditions or with negative lifestyle factors such as weight, smoking and occupation - is set to continue.

It also says enhanced annuities make up around a third of all annuities sold - by premium volume - in the open market in the UK.