Medically Enhanced Annuity
Written by
David & Angela
Reviewed by
Richard
Date
March 2025
What is an enhanced annuity?
Who qualifies for enhanced annuity rates?
Are enhanced annuity rates available from all providers?
Can I buy an enhanced annuity through my existing pension scheme?
How much extra income could I receive?
Is a medical examination required?
What happens to my annuity when I pass away?
How is an enhanced annuity taxed?
What are the benefits and risks of enhanced annuities?
Next steps
What is an enhanced annuity?
An enhanced annuity, sometimes referred to as an impaired life annuity, is a type of lifetime annuity that offers higher guaranteed income for individuals with certain health conditions or lifestyle factors.
It functions in the same way as a conventional annuity—providing regular income for life—but the payments tend to be higher due to assumptions about reduced life expectancy.
Enhanced annuities are designed to reflect the fact that people with specific medical conditions or lifestyles may, on average, have shorter life expectancies. As a result, providers may offer a higher income on the basis that they expect to pay it over a shorter time period. Of course, this is based on statistical modelling and does not predict individual outcomes.
Who qualifies for enhanced annuity rates?
Eligibility for enhanced rates depends on a range of medical and lifestyle factors. There are estimated to be around 1,500 recognised conditions and circumstances that may qualify. These include:
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Common health conditions such as high blood pressure, diabetes, high cholesterol
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More serious medical histories, such as cancer or heart disease
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Lifestyle factors such as smoking, alcohol consumption, or being overweight
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Personal metrics like height and weight
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Postcode, as some regions are statistically associated with shorter life expectancy
Even if you do not have a major health issue, you may still qualify for improved terms based on your lifestyle or background.
Are enhanced annuity rates available from all providers?
Not all annuity providers offer enhanced terms. This makes it especially important to compare multiple providers if you believe you may be eligible.
Some insurers specialise in enhanced annuities and may offer significantly better rates than standard providers.
Can I buy an enhanced annuity through my existing pension scheme?
While your pension provider may offer you an annuity when you reach retirement, you are not required to purchase it through them. In many cases, shopping around can result in a better deal, particularly for those eligible for enhanced rates.
Research from the Financial Conduct Authority in 2016 found that the majority of people who bought an annuity directly through their pension scheme could have received a higher income elsewhere.
How much extra income could I receive?
The additional income from an enhanced annuity depends on the specific medical or lifestyle factors involved. Some individuals receive up to 75% more income than standard annuity rates would provide, and those with multiple or severe conditions may be eligible for even greater increases.
Other factors—such as your age, the size of your pension pot, and current annuity rates—will also influence the total income available.
Is a medical examination required?
In most cases, enhanced annuity assessments are completed using a medical questionnaire. Providers may ask for permission to review medical records, and occasionally a medical exam may be requested, although this is uncommon.
To ensure your application reflects your circumstances accurately, it’s important to declare all relevant medical information and lifestyle choices. Even details that seem minor could increase your income offer.
What happens to my annuity when I pass away?
Enhanced annuities offer a range of death benefit options, which can provide continued income or a lump sum to a nominated beneficiary. These include:
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Joint-life annuity: Continues to pay income to a spouse, partner, or other financial dependent for the rest of their life. A joint plan can generally be taken out with anyone financially dependent on you and aged 40 or over.
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Guarantee period: Ensures income continues for a fixed term (e.g. five years), even if you pass away within that period.
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Value protection: Returns part or all of your remaining pension fund as a lump sum to your beneficiary, less any payments already made.
Adding death benefits generally reduces the income you receive during your lifetime.
How is an enhanced annuity taxed?
Like standard annuities, you can normally take up to 25% of your pension fund as a tax-free lump sum before the annuity begins. Ongoing income payments are taxed as earned income in line with UK tax regulations.
If you pass away before age 75, most death benefits from an annuity are usually paid tax-free to your nominated beneficiary. After age 75, these payments are generally treated as taxable income for the recipient.
What are the benefits and risks of enhanced annuities?
Choosing an enhanced annuity can provide financial stability, but there are also potential limitations to consider.
Risks:
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A level annuity may not keep pace with inflation, reducing its real value over time.
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Escalating annuities, while inflation-linked, start with a lower income (often around 33% less if escalating at 3% annually).
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Death benefits are only available if specifically included.
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Once purchased, the terms of the annuity are fixed and cannot be amended.
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No exposure to future investment growth, which other retirement income options may offer.
Benefits:
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Provides a predictable, secure income for life, helping with long-term budgeting.
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Potentially higher income if you qualify for enhanced terms.
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Optional death benefits can provide support for dependants.
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No need to manage investments or take on market risk.
Enhanced annuities can be a valuable option for those whose health or lifestyle may impact life expectancy. If you’re considering this route, it may be helpful to seek advice to determine whether it aligns with your overall retirement strategy.
Next steps
Want to see how much income you could really get?
Check the latest annuity rates or get a personalised quote now through Legal & General, Aviva, or use Retirement Line’s annuity calculator to get an up-to-date forecast — it only takes a minute to get started.
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