With conventional annuity rates being driven
down by low interest rates, UK consumers are increasingly
recognising the income benefits to be derived from enhanced
annuities.
This was clearly evident in 2011, a year in
which enhanced annuity sales surged by 22% compared with 2010 to
£3.02bn ($4.8bn), according to Towers Watson.
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Last year’s strong demand for enhanced
annuities, which are available to people with medical conditions or
lifestyles that lower their life expectation to below average,
continued a trend that has gained momentum since they were
introduced in the UK in 1995.
Illustrating this, between 2001 and 2006
enhanced annuity sales increased from £419.6m to £815.9m, to
produce a CAGR of 14.2%.
Between 2006 and 2011, the pace accelerated to
produce a significantly higher CAGR of 29.9%.
However, there is still room for considerable
growth in the enhanced annuity sector, believes Andy Sanders, a
senior consultant in Towers Watson’s insurance management
consultancy.
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By GlobalData“Enhanced annuity sales were around 15% of the
total annuities sold to consumers in 2011, yet the current range of
medical conditions and lifestyle factors that can lead to
enhancements suggests a greater proportion of retirees could
benefit,” says Sanders.
“Greater use of the open market option at the
point of annuitisation would undoubtedly drive this percentage
higher.”
Enhanced annuities accounted for 12% of total
annuity sales in 2010, according to Towers Watson.
Indicating the potential for further growth,
Just Retirement, a brokerage, estimates that up to 60% of retirees
could qualify for enhanced annuities.
The uplift in income over conventional
annuities can be in excess of 40%, notes Just Retirement.
In a separate development, the Alexander
Forbes National Pensions Index has revealed that the average
British private sector worker has lost £2,750 ($4,384) per annum of
their future retirement income in the last 12 months.
The government’s quantitative easing programme
has been blamed for the issue.
