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Enhanced annuities - the unhealthy truth

Enhanced annuities catching on. But if your lifestyle sucks or you have medical problems, chances are you can’t have one. It’s another reason we need tontines.

Enhanced annuities - the unhealthy truth

We’ve all been taught the virtue of doing all we can to stay fit and adopt a healthy a lifestyle. Don’t smoke, drink only moderately and exercise regularly for the best chance of a longer, happier and more fulfilled life.

A long life means annuity company strife

But in the glum world of annuities, that longer life is now a big problem. To pay for that steadily rising number of people who are keeping the grim reaper waiting, annuity payouts - which have already been driven to historically low levels because of rock-bottom interest rates - have had to compensate further still.  It’s made the traditional annuity an even more thoroughly unattractive proposition than it was before.

Pushed up against the ropes, the annuity companies have come out swinging. Their response has been to offer the so-called “enhanced annuities” paying a much higher income. Indeed, according to research published by self-styled “annuity geek” Mark Ormston, you can get a whopping 19 percent more income a year on average by going “enhanced”.

Enhanced annuities on the march

And it’s caught on. As his chart below illustrates, over the last ten years, enhanced annuities have almost entirely cuckooed their standard counterparts out of the nest.


“Great!”, I hear you cry, “Get me one of those enhanced annuities!” But no so fast - there are some strings attached. 

It’s enough to make you sick

To qualify for an enhanced product, you will typically need to convince your annuity provider that you aren’t going to linger too far past your allotted three score years and ten. So if you lead an unhealthy lifestyle - such as being a smoker or a heavy drinker - or are unfortunate enough to have a health condition - you are most likely going to miss out. The last thing the annuity companies want is a legion of Methuselahs on their books.

In essence, then, if you are a fit and healthy individual who looks after themselves you will be shut out of getting competitive annuity benefits.

Tontines don’t cramp your lifestyle - they improve it

This is another reason why we need tontines. Tontines don’t penalise their members for being fit and healthy. In fact, they promote well-being by providing a superior and rising level of income that motivates people to want to live longer.

Moreover, in later years, when medical and care costs are most likely to spiral, the tontine, boosted by longevity credits that share out the benefits of deceased members, has the potential to deliver an income that leaves even the most enhanced of enhanced annuities standing. 

We do not say that enhanced annuities are bad products as they certainly have their place. But what their rise to dominance in the annuity market has proved is that standard versions - the type that everyone can purchase - are no longer fit for purpose. 

What is needed is a product that can deliver great benefits, regardless of personal circumstances, and fill the yawning vacuum in the market created by the demise of possibly the most loathed financial product on the planet.

Tontines - your moment has arrived.



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