Enhanced annuities pay more monthly income to over 55s who have suffered from medical conditions – but 72% told financial provider MGM Advantage they did not know even some comparatively minor conditions could help them earn more from their retirement savings.

Doctors have treated around 60% of over 55s for conditions that qualify for the enhanced payment.

The firm explained a smoker could receive an extra £1,000 income a year from an enhanced annuity.

Other conditions that would qualify include the 40% who have suffered from or have high blood pressure, 33% with or who have had high cholesterol and the 12% under treatment for diabetes.

The firm’s Andrew Tully said: “With so many people experiencing medical problems, it is a concern that so many are unaware of enhanced annuities. Despite as many as 70% of retirees potentially qualifying, recent industry data showed that only 2% without a financial adviser bought an enhanced annuity, which is shocking.

“When you look at the difference in rates, a man, aged 65 with average impairment could receive an extra £8,684 income for the first five years of retirement simply by making the right choice. Which is why, as an industry, we need to work hard to ensure people are made aware of all of their options.”

Enhanced annuities factor medical conditions and lifestyle choices in to calculating income. The rates are higher for those with a condition because life expectancy is shorter.

MGM Advantage gives an example of a healthy man, aged 65, with a £100,000 pension fund, who could receive £6,106 a year income from a standard annuity.

If this man was a smoker with high blood pressure, the annual income would increase to £7,115. If the same man had diabetes with high blood pressure and high cholesterol, the annual income would increase to £7,843.

Medical conditions and percentage of over 55s qualifying for enhanced annuities

At present, it is cheaper for families to use local authority care services than to stop working and look after vulnerable relatives at home.

A report compiled by the Free Enterprise Group has said that approximately £1.14 billion each year could be saved by the Government if it gave money direct to families to care for their relatives, rather have them rely on council run care schemes.   

Author of the report, Tory MP, Chris Skidmore, said: “As a society we should be encouraging people to care for their relatives.

“Where a local authority might otherwise be paying several hundred pounds a week for residential care, they could instead be offering a fraction of that to a relative to provide care themselves.”

He goes on to say that this imitative would greatly improve the “quality of life” of many elderly people by allowing them to remain in their own homes (or stay at their loved ones homes), whilst being looked after by those closest to them.

Age related charities and campaigners have warned that local authority care services are in crisis due to the crippling cuts they have suffered.  A knock on effect of this has been that more elderly people have ended up in hospital, or have had their hospital stay extended, because of the lack of social care to support them at home or in a dedicated care home.

As things stand, local authorities are responsible for allocating personal budgets to people who require care in their old age.

Mr Skidmore has looked at schemes in Holland and Germany and has come to the conclusion that it was more efficient to give the money to the families to look after their relatives than to give extra funds to councils to provide care facilities.

Currently it costs an average of £500 a week for a residential stay in a care home, the Free Enterprise Group propose that a person caring for an elderly relative be given an allowance of £350 a week to cover all associated costs.

The group feel that many families would prefer this option as it would give them “flexibility and freedom” to handle their loved ones care.

It has been estimated that 75% of pensioners will require some form of social care assistant in their lifetime.

The report also shows that local authorities have written off debts of more than £100 million over the past decade due to families being unable to pay for received care services.

Local councils report that £361 million of outstanding debt is still owed to them by people using adult social care facilities.

Ministers are looking into increasing the number of families who would be entitled to help from the state to fund the care of their elderly or disable relatives at home.

Cross-party talks are being held at the moment and a white paper is due to be published in the coming months.

With this special deal, a 70 year old man who has £50,000 saved in his pension pot would gain an extra £258 per year, compared to those on the normal Standard Life annuity rate.  If he lived to be 95, he would receive an extra £6,500 on top of his usual pension pay-out.

The offer is only available to those who have held an ‘income drawdown’ pension for at least two years.

The drawdown type of pension—which is reliant on the stock market—has suffered heavily over the past few years, with some reporting income cuts of up to 60% this year. These losses have been attributed to weak stock markets, record low interest rates and changes in government rules regarding pensions.

In a bid to stop these investors from moving their money away from the company, the insurance giants, Standard Life, have started to offer customers a swap to a higher pay-out rate on an annuity instead.

Annuities give pensioners a guaranteed income for life, regardless of what happens to their investments, whereas income drawdown investments can rise or fall depending on how well the stock market is performing.  Meaning that a pension income can increase, but it can also be completely wiped out if the markets do particularly badly.

Spokesperson for Standard Life, Alastair Black advised customers to speak to an independent financial advisor before reaching a decision about switching their drawdown plans for the annuity offered.  And he admitted that people with serious illnesses, and those who smoke, would be able to find better deals elsewhere. In some cases up to 30% better.

However, for those in good health who hold personal pensions or with-profit schemes with the company are actually being offered annuity rates that are lower than other rivals.

For example: a 70 year old man would be offered £3,383 per year from Standard Life, but Aviva would give him more than £3,500.

The special offer from Standard Life would pay-out £3,640 a year to the same man, but the company stress that the offer could be withdrawn at any time.

Before committing to any annuity we recommend that you seek independent financial advice and gather quotes from various different insurers to ensure that you get the best deal.

The Institute of Directors’ report shows that people are losing faith in pensions, and more are turning to tax-free Individual Savings Accounts to build their retirement income.   

The Office for National Statistics (ONS) has compiled figures that reveal in 2009, £22.9 billion was invested in company and personal pension schemes.  A decrease on the £24.9 billion figure in 2008, and £25.6 billion in 2007.

In contrast, according to figures from HM Revenue and Customs, in the tax year 2009-2010, £44 billion had been invested in Isas, and last year that figure increased to £53.9 billion.

Currently a person can save up to £5,640 each year in a cash Isa, or £11,280 in a stocks and shares Isa.

Spokesperson for the Institute of Directors, Malcolm Small said: ‘Traditional pensions are now out-dated and increasingly unattractive. The fact that so many people are either not saving at all for retirement, or moving into other investment vehicles such as Isas, is a stark illustration that the current architecture has lost public confidence.’

He went on to say that the feeling was that more and more people would switch from pensions to Isa, with the trend ‘set to continue or even accelerate.’

Elsewhere in the report, the Institute of Directors believes that the state pension age should be increased to 70 by 2044, saying: ‘A higher State retirement age will also encourage private saving for those who wish to ‘retire’ earlier.’

The coalition has already begun to phase in rises to the pension age, with the age rising to 66 for men and women by 2020, and 67 by 2028.

However, the lobby group feels that this timetable is too slow and ‘more needs to be done’ to speed up increases to the retirement age.

As things stand, ministers are already consulting on whether to link the state pension age to life expectancy, which would mean more rises over the coming years.

The average value of a final-salary pension scheme is said to peak in 2012 at £7,100 a year.  But by 2060, this will have shrunk to just £2,400, as fewer people have defined benefit pensions.

Presently, six million pensioners have a defined benefit pension, but this number is set to reduce rapidly as more and more private sector companies are closing their doors to such schemes and changes are made to pension schemes in the public sector.

A DWP spokesman said: ‘We cannot go on paying the State pension at an age set early in the last century which is why we’ve already increased the state pension age and are looking at how it can be linked to longevity.

‘We are moving ahead with our plans for a single, simple rate of state pension and are making sure people have a pension of their own.’

Research compiled by the campaign group, the Taxpayer’s Alliance, has found that council pension schemes in the UK had a combined £54 billion deficit in 2010-2011.  

Whilst this has reduced from the deficit in 2009-2010, when it was at a staggering £94 billion, it is still much lower than the pre-recession time of 2008-2009 of £51 billion. The £40 billion improvement was due to better than expected results on the financial markets.

The Taxpayer’s Alliance, who campaign for lower taxes through better efficiency in public sector areas, have stressed that local authorities need to reform their current schemes to ensure that the pension schemes were affordable in the future.

The group looked at all of the 101 local council pension schemes in operation in the UK and processed information from annual statements of accounts for the past financial year.  It used actuarial estimates for the assets held by the local authorities, along with liabilities to work out how each scheme was performing.

The report says that Birmingham currently has the biggest pension deficit of £1.3 billion. Glasgow, along with 13 other councils, has a deficit of more than £500 million.

The alliance’s report goes on to say that local authorities’ final salary pension schemes were “inflexible” and “too expensive” to run and required reforming.

Director of the Taxpayer’s Alliance, Matthew Sinclair, said: “The deficit in the local government pension scheme remains a ticking time bomb,”

He continued: “Councils should not take false comfort in the improvement in the stock market. Their pension liabilities continue to far outweigh their assets and the situation remains worse than two years ago.”

Currently in excess of 4.5 million local government employees have pension schemes, with 1.8 million staff still contributing.

Ministers are concerned that the cost of these pension schemes will be passed onto the taxpayer in the form of higher council taxes.

The Coalition is trying to cut billions from the public pensions, including saving £900 million from the local authorities pensions bill by 2014-2015.

It is currently in negotiations with unions regarding the long-term reforms that will be made to the pension schemes, with proposals of employees increasing their contributions, increasing the retirement age and changing the accrual rate all being discussed.

However, the Local Government Association, which represents 400 local councils in England and Wales, hit back at the report.  It said the Taxpayer’s Alliance report was not based on recent figures and its findings were irrelevant to the actual cost of the pension schemes.

Chairman of the Local Government Association, Sir Steve Bullock, said:

“Councils have taken steps to ensure the schemes, which are significantly funded by contributions from employees, are affordable for taxpayers, fair to workers and viable in the long-term,”

“The fact the nominal deficit fell by £37bn in just a year shows that we are getting it right and that the supposed ticking time bomb is already being defused.

“We will continue to work to ensure the on-going viability of local government pensions.”

The British Retail Consortium along with analysts Nielson warn that there will be further increases in grocery prices in 2012 as the cost of petrol and diesel continue to rise and the lack of rainfall is a worry for crops.   

According to the shop price index compiled by the British Retail Consortium, the food inflation rate has risen to 5.4% in March, an increase of 1.2% from the February figure.

Overall inflation of other non-food goods has decreased by 0.9%.  Price reductions on goods such as electrical appliances, clothing and footwear has seen inflation enjoy its largest drop since 2010.  However, this fall wasn’t enough to offset the rising food prices and overall shop price inflation that went up from 1.2% in February to 1.5% in March.

The BRC report revealed that the price of oil has risen 11% this year; this has in turn increased the cost of both transportation and the manufacturing of goods, which has been the main contribution to the rise in food inflation.

A spokesman for Nielson, Mike Watkins, said: “Consumers are having to cope with falling disposable incomes, with fuel and household energy costs also increasing since the start of the year. With inflationary pressure continuing in the food supply chain we can expect supermarkets to keep a strong focus on promotional activity over the next few months.”

Economists have warned that the forecast of droughts in parts of the UK, particularly in the south of the country, will put further strain on food inflation and prices would inevitably increase.

Lowered energy bills in the UK helped to decrease the consumer prices index (CPI) inflation rate in February to its lowest level for a year, to 3.4%.  However, this was 0.1% higher than the Bank of England had forecasted.

Spencer Dale, Chief Economist for the Bank of England said: “One obvious worry … is the possibility that tensions within the Middle East could escalate and put further upward pressure on oil prices.”

Pension giants, the Prudential, who commissioned the report, say that women are twice as unlikely to have a company pension than men.

The company goes on to say that 20 per cent of women who retire in 2012 will only have the State pension for the retirement income, whilst only 8 per cent of men face the same pension future.

To add to their woes, millions of women do not qualify for the full State pension, which is currently worth £102.15 a week, so will retire on even less money at a time when general household expenses such as food, utilities and petrol are at an all-time price high.

The State pension is due to raise tomorrow by £5.30 to £107.45 a week, the biggest increase in pensions for more than a hundred years.

The report—which was compiled by questioning 9,614 people over the age of 45, of which 1,003 are due to retire in 2012—also reveals that a lot of women who will be drawing their State pension this year are not aware of how much money they will receive.  25% of women questioned believed that the State pension was much higher than it actually is, or ‘simply did not know’ how much it was worth.

Retirement Income Expert for the Prudential, Vince Smith-Hughes, stated that the State pension should be viewed as a ‘safety net’ for Britain’s pensioners, and they should have additional retirement income.

He said: ‘For far too many people, the State pension has become the default income option in retirement.’

The coalition government has brought in a number of changes that will see the largest shake-up of the pension industry for decades.

The automatic enrolment scheme commences this October, which means that companies will be forced to pay into pension schemes for their workforce for the first time.  This initiative should see a dramatic increase in the number of women who pay into company pensions. 

The scheme applies to all employees over the age of 22 who earn more than £8,105 a year.  They will be required to contribute 3% of their salary to a pension fund, whilst their bosses contribute 4% and a further 1% in tax relief will be added into the pot.  However, the scheme isn’t compulsory and employees are able to opt out of the scheme if they wish.

The payment brings the deficit of the pension fund down to £2.1 billion and is part of a 9 year plan to boost the scheme, with further payments of £325 million to be made each year.  

BT’s pension scheme is one of the largest in the private sector with some 330,000 members.

Chief Executive, Ian Livingston said: “This agreement, under which the company makes an immediate contribution to the scheme of almost half of the deficit, reflects BT’s financial strength and re-affirms our commitment to the scheme,”

“BT’s long-term sustainable cash generation has improved significantly since the 2008 valuation and we remain focussed on improving BT’s financial strength, investing in our future and enhancing shareholder returns,” he continued.

The telecom giants review their pension scheme every 3 years, and have made a vast improvement since the last review when the deficit stood at £9 billion in 2008.

The company stated that at the end of 2010, the deficit would be cut by £2.9 billion as it changed the inflation measure it used to calculate pension increases.

However, the schemes investment successes are what are behind most of the recovery of the deficit.

The fund’s £37 billion worth of assets have made huge returns of 10.1% a year.  This reduction in deficit has led BT to make the decision to pay £2 billion to bring the deficit down further.

BT has also revealed that it is now more conservative in the way that it values the fund, allowing for increased longevity and higher rates of inflation.  It is also not expecting the returns on invest to be as high as past years.  This, the company say, has built in £6.6 billion of “prudence”.

Sadly, financial experts do not expect many other companies will follow BT’s example, and expect that more and more investment risks will be put onto the individual rather than the companies. Tom McPhail from Hargreaves Lansdown said:

“I do not think that this is, in any way, going to reverse the trend of companies closing down their final salary pension schemes,” he said.

“But it is good news to see a company making the cash available to at least deliver on the promises that it has made in the past.”

A study conducted by insurance giants Axa UK, has shown that the economic crisis has filtered through to those who are generally considered to have higher disposable incomes.   

The squeeze has come about as more and more people are finding it harder to make ends meet due to rising bills, petrol price increases and reduced interest rates on their savings.

The Big Money Index—which is conducted every three months and questions between 1500 and 2500 people each time—shows that 24% of people in the ‘successful security’ consumer bracket, have started to purchase more value and own-label goods over the last few months.

The ‘successful security’ bracket is mainly made up of married people in their 40s and 50s, most have higher than average incomes and many have second homes.

A further 17% of this bracket said that they had been forced to reduce the amount of petrol, gas and electricity they use over the same time period.

Of the ‘exclusive lifestyles’ bracket, usually made up of mortgage-free, high-earning, married couples in their mid-50s to 60s who have grown up children, 13% admitted to swapping named brands for lower cost items.

Director of Customer Partnerships for Axa UK, Nick Turner, said the study showed that a pattern was forming and even those with high disposable incomes felt they needed to cut back on day to day spending.

He said: “Tighter purse strings are evident, with many restricting not only the nicer things in life, but also making changes to their food shopping and fuel consumption to a degree that paints a disheartening picture.

“However, we are encouraged by the fact that increasing numbers are at least trying to manage their finances more proactively.”

Many people are also changing their supermarkets for their basic food shopping.  29% of people in the successful security category and 18% in the exclusive lifestyle bracket said that had already downgraded their supermarket choice or were thinking of doing so.

The Bank of England began their policy of quantitative easing—buying government bonds with electronic money—three years ago in a bid to keep the country out of recession.  

However, the knock-on effect is that Government bonds are now more expensive to purchase and offer investors much lower returns.  In turn, this has made funding pensions more expensive, therefore increasing their deficits.

Chief Executive of the NAPF, Joanne Segars, said: “Businesses running final-salary pensions are being clouted by QE.”

“Deficits that were already big now look even bigger because of its artificial distortions.

“Firms are legally obliged to fill the deficits, and that diverts money away from jobs and investment, and will lead to further closures of final salary pensions in the private sector,” she warned.

In terms of investors in Government bonds, pension funds are big players. But if the price of bonds continues to rise and returns decrease, schemes will need to purchase more and more to achieve the same pension income.

Because insurance companies who fund annuities invest heavily in Government bonds, QE has also affected annuities rates.  This means that pensioners have to pay more to convert their pension pots into annuities, leaving them with a reduced annual income for the rest of their lives.

“Falling annuity rates mean the average person with a pension pot of £26,000 retiring now would get 22% less income than if they had annuitised four years ago. This is a loss of £440 a year,” the NAPF said.

The NAPF stressed that it wants the Bank of England and the Pensions Regulator to advise people that the rising deficits were artificial.

The association felt that the Pensions Regulator should allow schemes to calculate liabilities by investing where better returns could be found, such as the returns achieved with corporate bonds.

It also asked that employers be given more time to pay off deficits in their pension schemes by making extra contributions.

In February, the Bank of England extended its quantitative easing program by another £50 billion, taking the total to £325 billion since 2009.

The NAPF estimate that the cost of QE to final-salary pensions in the UK to be approximately £255 billion by December 2011.

The previous year the pension funds had shown a surplus of £33 billion, the NAPF’s calculations indicate that the pensions would still be in surplus if QE hadn’t happened.