An unhealthy lifestyle could bring a bumper retirement payout because actuaries expect you to die young!

Good life could lead to fatter pension 

WINE and tobacco are expensive and unhealthy luxuries, but anybody who manages to survive the fast lifestyle may find themselves in line for a substantial bonus in old age. 

Being unfit can win you a bigger pension. When the time comes to convert your pension fund into an annuity, you can use your physical condition to your advantage, and get a higher rate than somebody who is health conscious. The reason is that actuaries do not expect you to live so long. 

Smokers are fortunate because if they go to the right company they qualify for a higher-rate annuity without being ill. All they have to do is prove they have been smokers for a number of years. 

You do not need to be completely 'kippered', either. Stalwart Assurance has launched a special rate for relatively light smokers. In order to qualify you need to be able to prove that you have consumed 10 cigarettes a day, or 3 ounces of pipe tobacco a week, on average, for the past 10 years. 

For a typical 65-year-old smoker the company offers a rate 3% better than it would offer a non-smoker of the same age. If your fund amounts to £160,000, you would gain an extra £500 a year for the rest of your life – just about enough to buy you 10 cigarettes a day. 

The big life companies have been reluctant to offer special deals to people whose life expectancies are below average. But with more people retiring with personal pensions, the market is gradually becoming more competitive. 

Since an annuity is effectively a life-assurance policy in reverse, there is no reason why the calculation of annuity rates should be any different from life assurance. The only difference is that the greater your risk of dying, the more money you ought to get. 

After all, smokers always had to pay more for life assurance on the grounds that the life assurance company is more likely to have to pay up. Peter Quinton of The Annuity Bureau, which shops around for annuity buyers, says: "Life companies are being a bit slow in coming round to matching some of the deals available from specialist companies." But the market is currently being driven by the specialist companies." 

If you have been diagnosed with a serious health problem, you may find that you qualify for an "impaired-life annuity". Judith Tarlo, a public-relations expert, doubled her pension income because she is suffering from cancer. 

First diagnosed seven years ago, she suffered a relapse just before Christmas. Around the same time she decided to take her pension, and found herself pitched into a bewildering market of annuities. 

She says: "In one case I had 20 quotes from the same people who kept changing their minds. In the end I went to The Annuity Bureau, and was offered an enhanced annuity rate by the Pension Annuity Friendly Society and a couple of others." 

There is nothing to lose by taking out an impaired-life annuity - if your illness turns out to be less severe than your doctors originally believed, the life company is still obliged to pay the higher rate. Once an annuity deal has been fixed, it stays fixed for life. 

Until now it has been difficult to get special rates if you suffer from a milder condition that may not be life-threatening short term, but is associated with shorter life expectancy, nevertheless. This week, however, Stalwart Assurance introduces special annuity rates for people suffering from obesity, high blood pressure, high blood-cholesterol levels, diabetes and asthma – conditions that affect millions of older people. 

Martin Allenby, 61, who runs a driving school in North Ferriby, near Hull, has recently been diagnosed with diabetes. He says that the disease has not affected his life but has got him some extra pension money. 

The annual £2,800 offered by Stalwart was £500 a year higher than he was originally offered by his own pension company and 2% better than any other offer. He says: "My diabetes causes me no problems at all. I only found out about it at a well-man clinic, and I only went to that because it was free. I was expecting them to say I was fully fit, and was amazed when they told me I had diabetes. I took out this pension to pay for holidays." 

In certain cases it is not just you but your spouse, too, who can benefit financially from your medical condition. The specialist companies will sometimes quote a special impaired-life rate on an annuity with "widow's benefit" - which continues to pay a pension to your spouse after your death. 

Quinton says: "One man was able to get an impaired-life annuity paying 25% more than an ordinary annuity, and  the annuity included 50% widow's benefit. So if he died she would still benefit from the enhanced rate." 

In a few years, you should be able to gain an enhanced annuity rate for all sorts of reasons related to your health and lifestyle. Surveys show life expectancy is lower for inner-city areas than for suburban areas in the south. If you live in central Manchester, the unhealthiest part of Britain, according to statistics, you should soon be able get a bigger pension. 

Source: Sunday Times: 1/3/98