How ill-health can boost retirement income with enhanced annuity

In many cases, those with ill-heath, including smokers, could be better off financially when they buy their retirement income from an insurance company, known as an annuity.

Yet many fail to declare key problems because they have no-one to prompt them that it will boost their income.

Figures from retirement specialist Annuity Direct show only 20% of its clients who buy an annuity online or via a salesman who does not give advice disclose a medical condition.

This compares to 44% who declare a problem when they buy from an adviser who is allowed to offer advice.

The reason you get more if you declare a condition is insurers think you are more likely to die earlier than a healthy person so can afford to give extra as they are likely to pay out for less time.

An annuity linked to a medical condition is known as an enhanced or impaired annuity.

Based on someone with a £100,000 pension pot at age 65, the examples below from Annuity Direct show how much more they would qualify for on a typical annuity by declaring a condition.

• Male, smokes 10 cigarettes a day, high blood pressure and has had a stroke. Standard quote: £6,594. Enhanced: £7,855 = £1,261 more per year, £25,220 over 20 years

• Female, smokes 15 cigarettes a day. Standard quote: £6,278. Enhanced: £7,554 = £1,276 more per year,£25,520 over 20 years.

• Male, high blood pressure, high cholesterol and diabetes. Standard quote: £6,594. Enhanced: £8,098 = £1,504 more per year, £30,080 over 20 years.

Bob Bullivant, chief executive of Annuity Direct, says: "It is absolutely vital to disclose all medical conditions. 

"Even something common like high blood pressure can entitle you to a higher income. When you are buying an annuity this is the one time when the more medical conditions you disclose the better.

"This additional income is paid for the rest of your life, so if you outlive the statistics you really can gain."

Not everyone has to buy an annuity after the Government scrapped rules that forced most to get one by age 75.

Instead, pensioners can simply draw the money from their pension pot, though anyone with a retirement income of less than £20,000 faces restrictions on how much they can take.

Many experts still think an annuity is best for all but the well-off, given there is a risk they could run out of cash otherwise.

Tom McPhail, from adviser firm Hargreaves Lansdown, says: "For most, the best way to take income in retirement will be by buying an annuity."