now paid £850 a year more income if they SMOKE (heavy drinkers get more too) | Personal Finance | Finance


They can also get more cash every year if they are overweight or have suffered from serious health problems in the past. What’s more, the amount of income they can generate is growing rapidly, as interest rates rise.

Usually when buying financial services products, it pays to be healthy. For example, life insurance is a lot cheaper, as you are less likely to die during the term of your policy, and claim your payout.

Yet that equation reverses when you reach retirement and consider buying an annuity, which is a guaranteed income for life.

The income is paid every month until you die, regardless of whether you live for another five, 10 or 25 years.

The healthier you are, the greater your life expectancy. Therefore annuity companies treat healthy people as riskier customers, and pay them a lower annual income.

It may not seem right but that’s how it works.

Annuity providers pay more income to those in poor health, or whose lifestyle is bad for the body. Putting it brutally, the provider expects them to die sooner, and pays them more income as a result.

They do this via something called an “impaired life annuity”, but Stephen Lowe, retirement specialist at annuity providers Just Group, said many people do not even know this option exists. “As a result, they risk losing thousands in income during retirement.”

Annuity rates are rising across the board as the Bank of England increases interest rates.

In April last year, the average 65-year-old with a pension worth £100,000 would have got income of just £4,882 a year from a level single life annuity.

Today, they would get £6,243 a year, latest Hargreaves Lansdown figures show.

READ MORE: Pensioners get £1,400 a year extr income from forgotten savings option

That would give them an extra £1,361 a year, a rise of almost 27 percent.

Yet if the same person smoked, their £100,000 would now buy income of £7,078 a year.

That is an incredible £835 a year more, or an extra 13.4 percent. This would give them £16,700 in extra total income if they lived for another 20 years.

Impaired life annuity rates seem to be growing faster than standard rates – just a few months ago, an impaired life annuity only paid £700 more.

When considering whether to buy an annuity at retirement, you should always shop around for the best deal, said Andrew Tully, technical director at Canada Life.

“Do not simply take the annuity offered by your pension company, but see if you can get a better deal on the open market.”

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Answer any questions about your health problems and habits in full, as this could boost your income.

Although annuity rates have risen dramatically, they may not be the best deal for everybody.

Most pensioners now prefer to leave their retirement savings invested via drawdown, and take income as they need it.

This allows your pension pot to grow in line with stock markets, but it could also shrink if stock markets crash.

One option is to mix and match, buying an annuity with a portion of your pension while leaving the rest invested.

You could then buy more annuity later, Tully said. “You will get more income as you get older.”

Consider all your options, such as taking out a joint life policy to protect a partner, or a policy that refunds some of your money if you die soon after taking it out.

“Consider taking independent financial advice, to guide your decision and get the best deal,” said Becky O’Connor, head of pensions and investments at Interactive Investor.

Don’t forget to mention if you smoke or like the odd drink or two.

Just remember the reason you are getting more income. It is because the annuity company expects you to die earlier than you would if you quit.

A healthy life is worth more than money.

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