UK - Market share for enhanced annuities grew by 30% in the first half of 2002.
But the growing volume pressure means that ‘healthier’ applicants are suffering reduced rates as a result.
Impaired or enhanced annuities cover serious medical conditions, smokers or result from lifestyle factors such as weight, occupation, and geographical location.
According to a survey by Watson Wyatt, the market looks set for dramatic growth. Up to 40% of annuitants may be entitled to take out enhanced annuities, according to industry estimates.
The good news is that more people are becoming aware they are eligible for increased income from their annuity, said Mark Joannes, a senior consultant at Watson Wyatt.
The bad news is that this increases the pressure on providers to reduce rates by up to 10% for healthier annuity applicants.
The survey explains that the volume of enhanced annuities was £391m during 2001 and £254m in the first six months of 2002. The total market for conventional annuities was £5.3bn in 2001, and £2.7bn in the first half of 2002. This represents a market share of 9.3% of all conventional annuities in the first half of 2002, up from 7.3% in 2001.
The vast majority of enhanced annuities are also sold through the open market option, a mode given extra impetus following new rules implemented at the start of September requiring that more prominence be given to the availability of the open market option at retirement.
This fragmentation of the market into impaired and healthy lives mayencourage the healthier lives to consider income drawdown or investment linked annuities at retirement as an alternative to guaranteed annuities which will look increasingly expensive, added Joannes.
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