How standard and enhanced annuities are applied on the open market

Article date: 26 November 2013

Clive Bolton, Aviva’s Managing Director of At Retirement, has said there is a huge overlap between standard and enhanced annuities, influenced by a number of factors including customers’ health status and where they live. For example, a wealthy individual with lifestyle conditions such as high blood pressure and high cholesterol could get a lower rate than a healthy but less wealthy person, depending on the individuals’ circumstances.

Speaking at Westminster and City’s Seventeenth Annual Conference on Annuities and Drawdown he emphasised that standard annuities do not have a single fixed rate, but vary according to a customer’s circumstances.

The graph below shows how annuity rates are a function of health and other factors such as postcodes:

  • It is based on a whole year of open market annuity standard and enhanced quotes through the various quotation systems submitted by IFAs (about 360,000 in total).
  • The ‘standard’ and ‘enhanced’ split is simplistic as the actual picture is a continuum from very healthy to very ill.
  • The spread of bars shows the variance in life expectancy, with the average reduction of an enhanced case being about 5 years.
  • The black line is an indicative annuity rate, these will change from provider to provider but the variation is small compared to the trends in the graph.
  • The diseases labelled are to give a guide - clearly they can take different forms and levels of severity (and for a small number of cases the quotes are just the start of a predominantly manually underwritten process). 

He also said that as an industry we needed to move away from the old idea of ‘enhanced’ and ‘standard’ being distinct categories as the picture is more complex than that. 

As a leading provider across the entire market (standard and enhanced annuities) Aviva has a unique view of how it is developing. Other providers may or may not agree with this view, but Aviva encourages them to publish their own analysis in a comparable form and discuss.

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