The value of enhanced annuity sales in the UK rose to £2.47 billion last year, an increase of 38% on 2009, according to research by† Towers Watson.
Sales of enhanced annuities in the second half of 2010 were £1.21 billion, down 4% on the first half of the year.
According to the report, consumer interest in taking out enhanced annuities – which provide bigger pensions for those with serious medical conditions or with negative lifestyle factors such as weight, smoking and occupation – is set to continue.
Andy Sanders, a senior consultant at Towers Watson, said: “2010 was another record year for enhanced annuity sales, with just short of £2.5 billion of sales achieved.
“Many thousands of consumers have therefore benefited from higher pension incomes because their medical condition or lifestyle has been assessed and a lower than average expectation of life anticipated.
“The sustained growth of the enhanced annuity market over the last few years does however have implications. For those lives that do not qualify for an enhancement, expectations of life are (on average) longer and need to be reflected through lower levels of pension income offered.
“Insurers, whether active in the enhanced annuity market or not, need to ensure the mortality assumptions in their annuity pricing is an accurate reflection of the expectation of life of the consumers seeking their products.”
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