An annuity is an investment, a series of payments at fixed intervals, guaranteed for a fixed number of years or the lifetime of one or more individuals. It is a contract sold by an insurance company designed to provide payments to the holder at specified intervals, usually after retirement. The payment is based on the interest earned on the sum invested, rather like being paid deposit interest but based on your age and health. People retiring have two choices at retirement, opting to invest in an Approved Retirement Fund ( ARF – there are many rules and regulations ) or an annuity.
The trouble with annuities is firstly the current interest rates are very low and secondly after the guaranteed period ( 5 years, sometimes 10 years ) if you die, the insurance company keeps the capital.
One glimmer of light for these retirees opting for the annuity route is the enhanced annuity options. Essentially the more serious ailment you have, the greater the monthly payment.
Irish Life released figures today showing that 25% of their annuity customers took up this innovative product ( in the UK, the take up is 60% )
- 36% of customers qualified for increased retirement benefits because they were smokers
- 34% had high blood pressure
- 31% of customers had weight related conditions
- High cholesterol was a factor in 26% of cases
- A further 25% of retirees had other heart related conditions
Overall, 55% of people who qualified for the enhanced annuity product had two or more medical or lifestyle conditions
In a recent Central Bank of Ireland survey (January 2016), Irish Life’s Enhanced Annuity rates came out best in the market for this retirement product. David Harney managing director of Irish Life Corporate Business stated “Our objective is to continue to make customers aware that they may qualify for an enhancement that will make a significant difference to their retirement incomes.”
John Lowe the Money Doctor said “Awareness of both of these retirement structures before retiring is crucial and independent advice essential. It’s akin to the blocklayer building away unaware of the architect’s plan. Less than half the country have a pension plan in place and a good number of those who have are ignorant of the details on maturity. Demographically we are an ageing population – currently 677,000 over the age of 66 and by 2050, that figure will rise to 1.8million.”