It is only a matter of time until customers start asking their advisers about impaired life annuities to boost their income, writes Sandy Johnstone
With so much debate going on about retirement income levels and enhanced consumer education in terms of closing the savings gap, it should come as no surprise that those in the pensions annuity market have been looking at new or alternative ways to enhance the range of options that are available.
There has already been quite a debate on how annuity variants can help and there has been a strong message sent out that people approaching retirement should be made fully aware of what the open market option means for them.
At present there are six life offices offering impaired life annuities. There are some IFA firms who have established a nation-wide reputation for their expertise in pension annuity planning.
Norwich Union has just entered the market because we perceive it to be an essential ingredient in our product mix, especially when you consider it is estimated that around 10% of policyholders purchasing a pension annuity suffer from an impairment which significantly reduces their life expectancy.
The Association of British Insurers and the Financial Services Authority are working together to ensure that consumer education is enhanced on the whole topic of making informed decisions at retirement.
The latest outcome is the development of a new fact sheet by the FSA which helps consumers make those decisions. It also helps people understand more about the role of impaired life annuities.
It should therefore become well known that if you have suffered from a heart attack, cancer, or a stroke you could be entitled to a higher annual income than the norm.
I believe it is only a question of time, and a short time at that, before financial advisers will be finding that their clients are seeking out the impaired life annuity route to enhance their income. As part of a client fact find, the health of the retiree should be explored. The difference in income can be quite dramatic and therefore it is in the interest of the adviser and client to explore the route as a matter of standard good practice.
As knowledge increases, so will demand for advice, and as the advice kicks in to increase sales volumes of impaired life annuities, there will no doubt be more new providers coming into the market. This may make it more onerous for the adviser to seek out best terms, bearing in mind that there is an underwriting process which has to be followed.
In the long term care sector, major players in this field have banded together to make life easier for the customer and the adviser by developing a single application process. Perhaps some lessons can be learned from this new approach.
The market is growing, consumer education will increase, and new players will enter the market. And for those who are suffering from poor health, there will be some real financial benefit arising from their misfortune.
