How are you? Really?

How thinking a little differently could make a real difference to the income you get from pension savings you have outside a public sector or other defined benefits scheme.

“How are you?” “Good” or “Fine” you’re likely to reply. That’s because we all know that “How are you?” is an alternative greeting to “Hi”. We know that it’s usually said with nothing more than a passing interest in your well-being or health. And that’s OK. Imagine if you were to launch into a long tale about being tired, wheezy with asthma, trying to lose weight, taking cholesterol medication and a history of heart disease. It’s just not in our psyche or our reserved British nature.

However, sometimes there’s a real benefit to talking about your health. You just might not realise the importance. It could make a big difference if you’re approaching retirement and considering converting your defined contribution pension pot (pension savings outside public sector schemes where benefits you receive are not linked to your salary) into an annuity for a guaranteed income for life, or drawing down income.

So what are we suggesting?

First, think about ‘personalising’ or ‘tailoring’ your income. Forget about whether you ‘qualify’ for increased annuity rates due to your health.

Guaranteed income for life

What does this really mean? Generally, when you look at buying a guaranteed income for life (an annuity) you would be asked about your health to see if you are ill enough for an ‘enhanced’ or ‘impaired’ annuity. If you qualified, it would mean your income would be higher.

But, like everything these days, underwriting moves on as life expectancy predictions change and medical science continues to improve. The scope of personalisation “underwriting” is now so broad that it’s becoming almost impossible to second guess if someone might ‘qualify’ or not.

It isn’t just about whether you have a serious condition such as heart problems or cancer. It can also cover more everyday things such as raised blood pressure, where you live, smoking, alcohol intake and diabetes to name but a few. The idea of qualification is becoming redundant. Everyone can now get their own ‘personalised’ rate.

If we think about it at its simplest, everyone has a height and weight. Everyone is likely to have a postcode. Therefore, everyone can obtain their own personalised underwritten annuity rate. You don’t need to be seriously ill to get a higher guaranteed income for life.

This means that if you’re thinking of buying an annuity you shouldn’t be settling for anything ‘standard’, off-the-shelf or ordinary. Instead, think about having your plan tailored to your exact specifications. It should be bespoke. It could make quite a difference to the amount of income you receive.

Underwriting for drawdown reviews

People have more choice in how they use their money in defined contribution pension schemes, with drawdown becoming the popular choice. Understandably, flexibility is often high on their wish list. The tricky part though is knowing whether you’re taking too much out of your pot when you need income.

Obtaining a personalised annuity quote will provide an example of the level of guaranteed income for life you could receive. This can then be used as a benchmark for the income you’d like to take out of your drawdown plan. It will help you determine if your investments are providing the returns you need, and if the income you are taking is sustainable.

Asking your financial adviser to arrange for you to be underwritten at each drawdown review or annuity purchase will ensure that you’re getting the most out of your retirement, and have a truly tailored retirement income solution.