How does your health affect the annuity rate you are offered?

01 Why worse health buys more income

An annuity is priced on how long the insurer expects to pay. Anything that shortens that expectation raises the income for the same premium, which is the uncomfortable arithmetic at the centre of the product. It is not a discount or a sympathy adjustment; it is the same mortality calculation applied with better information.

The threshold is far lower than most people assume. A smoking history, treated high blood pressure, raised cholesterol, type 2 diabetes, a high BMI, or a past cardiac event are all routinely priced. So, in many cases, is a postcode in an area with lower average life expectancy.

The uplift is expressed as a higher rate rather than as a separate product. Two people with identical pots and ages can receive materially different incomes, and the difference is entirely in what the underwriter was told.

On the defaults above, the worked example shows £36,000. An extra £1,800 a year, which is £36,000 across 20 years of payments.

Source: MoneyHelper: guaranteed retirement income (annuities)

02 Disclosure is the whole mechanism

Nobody will ask you for a medical history unless you engage with the enhanced annuity process, and pension providers quoting a default annuity generally do not. The standard route is a common quotation form covering conditions, medications, height and weight, and smoking history, which is then shopped to insurers that underwrite.

Under-disclosing is the common error, and it is usually accidental. People discount conditions they consider under control — the statin taken for a decade, the blood pressure tablets that have made the problem invisible. Those are exactly the entries that move the rate, because the underwriter is pricing the underlying condition rather than the current symptoms.

Over-disclosing is not a risk. There is no penalty for listing something that turns out not to affect the price, and an insurer that does not enhance simply quotes its standard rate.

Source: FCA consumer information

03 It is a one-time opportunity

An annuity purchase is irreversible, and the rate is fixed at the moment of purchase. A condition diagnosed a year later does not reopen it, and neither does one you forgot to mention. That is what makes the health questionnaire the highest-value form in the whole process.

It also means the timing of a diagnosis matters. Someone in the middle of investigations has a genuine reason to wait rather than to buy, because a confirmed condition can be priced and an unconfirmed one cannot.

For people with significant conditions, the enhancement can change the whole comparison against staying invested. A materially higher guaranteed income alters the trade-off that made drawdown attractive.

Source: Plan your retirement income