Resident IFA Blog

Pension Annuities: Medical conditions/Cost of delay

Wed, 17th Feb 2010 - Author: Resident IFA

I presented to 25 local business-people this morning on various financial advice topics. One was headed ‘At Retirement’.

The heading is self-explanatory, although there are two issues worth mentioning:

Medical conditions

In the Q&A session after the presentation, it interested me to find that some people were surprised by the knowledge that an ‘Enhanced’ Annuity income could be available on medical grounds.

Rather than simply take your current Pension provider’s offer of income at retirement, you can search the open market for a better income, including reflecting potential lower life expectancy as a result of medical conditions, operations, smoking habits, etc. Dependent on the medical condition and severity you might, for example, add 35% to the original ‘standard’ income offer.

Your starter for 10: What exactly is Claudication? (Apart from being a medical condition that may lead a higher Pension Annuity income)

Cost of delay

In a role-reversal, I recently attended a presentation hosted by one of the major providers in the enhanced annuity market.

My revelation came from a slide entitled ‘The cost of delay’. By this, the presenter wanted to convey the difference in deferring your Pension income as opposed to taking it now.

The perceived wisdom is that, if you delay taking your income for a year or number of years, it will be markedly higher and benefit you more. For a basic (and possibly slightly unrealistic) example, take the scenario where you were offered £6,000 per annum income today, yet would receive £6,600 if you delayed this for 2 years instead (both are non-increasing incomes).

It would take you 20 years of taking the second income to match/catch-up in terms of the total income taken...£132,000.

Now, every single situation has to be carefully scrutinised, so this may not work through in every scenario and for each individual. A person may well need income sooner rather than later, not having the luxury of deferring their retirement income. As always, visit your IFA! (Independent Financial Adviser)

Until next time...

(E&OE)

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