Pensions and Enhanced Annuities Research:

Sales of Enhanced Annuities continue to grow

UK – May 28, 2009 – One sector of the UK economy that continues to expand apace is Enhanced Annuities, according to research by consultants Watson Wyatt.

Watson Wyatt data shows sales of Enhanced Annuities in the UK in the first quarter of 2009 were £443 million, 9.3 per cent higher than the previous quarter.

According to Watson Wyatt, the dramatic growth in the number of people taking out Enhanced Annuities – which provide bigger pensions for those with serious medical conditions or with negative lifestyle factors such as weight, smoking, occupation and geographical location – is likely to continue.

“Taking the first quarter’s sales on an annualised basis would imply sales of close to £1.8 billion in 2009, up from the record sales in 2008 of £1.4 billion,” said Andy Sanders, a senior consultant at Watson Wyatt.

Enhanced Annuities, sometimes known as impaired life annuities, make up roughly a quarter of all annuities sold in the open market in the UK, and Watson Wyatt expects this proportion to continue to increase.

“The conventional ‘pooling of risk’ approach to the annuity market is increasingly being challenged by the application of full or partial underwriting, whether based on health or on postcode as a proxy for expectations of longevity,” said Andy Sanders.

“These forms of segmentation are good news for consumers as they provide more options with which to maximise their income from pension savings. However, it does mean a more complex environment for product providers to remain competitively priced and for advisers to identify the most appropriate product for their clients.”

The average enhanced annuity premium in 2008 was just over £52,000.

Annual trends in enhanced annuity sales

Year Sales
2001 £419.6m
2002 £651.2m
2003 £697.6m
2004 £593.4m
2005 £638.7m
2006 £815.9m
2007 £1,095.1m
2008 £1,444.6m

Enhanced or impaired life annuities were first introduced in the UK in 1995 and have rapidly gained a substantial market share of all annuities sold. They include: annuities enhanced for serious medical conditions; annuities for smokers; and annuities enhanced as a result of lifestyle factors such as weight, occupation or geographical location.

Enhanced Annuities are currently offered by eleven providers: Axa, Canada Life, Just Retirement, Legal & General, LV=, MGM Advantage, Norwich Union, Partnership, Prudential, Reliance Mutual and Scottish Widows.

Keywords: Pension, Enhanced Annuities, Enhanced Annuity, Pensions

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