Enhanced annuities have come of age

Enhanced annuities (EA) have now come of age and become a mainstream product. Nowadays advisers need to justify why they are NOT recommending an enhanced annuity.

The EA market has exploded. According to the ABI, last year it reached over £4.5bn and accounted for 31% of all annuity sales¹. Despite the fact that up to seven out of ten retirees could qualify², the sad truth is enhanced annuities are still the reserve of those who get advice. Around half the value of annuities sold by independent advisers are on enhanced terms¹.

The booming non-advised channel also seems to be getting to grips with the enhanced market. Although only 5% of the value of annuities sold on non-advised terms were enhanced last year, this has increased to 18% for the second quarter of 2013¹. Thanks to better communications, both on the telephone and online.  Although there is some considerable ground to make up until it can match independent sales, this has to be good news for those who seek the non-advised route.

However, there are many thousands who fail to shop around and buy direct who are missing out on the increased income an enhanced annuity can secure. From April to July this year, 52% of people bought an annuity with the holding provider, but only a pitifully low 6% of those bought an enhanced annuity¹.

We need to rebalance this. We need to make more people aware of their choices and encourage them to shop around. Media coverage does its bit to heighten awareness of enhanced annuities. And the hope was the ABI code would encourage shopping around by getting providers to put the message clearly upfront. But the initial signs show there is no sharp increase in those buying from another provider – although it is early days.

Clearly, the key is getting help in making retirement decisions. And this is where another initiative might help. The Pension Income Choice Association (PICA) will shortly launch an adviser directory so consumers can find professional help through the retirement maze, be it on independent or non-advised terms. Hopefully if people get the help they need, they will be quizzed about their medical and lifestyle history and discover that an enhanced annuity might be appropriate.

The annuity market is changing fast. Writing annuities on individual terms is becoming the norm, and we must make sure people don’t miss out on higher incomes because of a lack of available help.

 
1.       Source: MGM Advantage analysis of ABI market statistics 2012 / 2013 
2.       Source: MGM Advantage Retirement Nation 2012