Product review: Scottish Widows Enhanced Annuity

Available through the intermediary market, the launch means the company now offers an choice between conventional and enhanced retirement income.

The Scottish Widows Enhanced Annuity is open to customers between 55 and 75 with a pension pot of £5,000 or more.

Clients can select to have the annuity underwritten on a single or joint-life basis and can opt for a guarantee period of zero, five or 10 years. They can also choose an increasing income, either in line with RPI or by a fixed rate each year, or stick with level.

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Payment frequency options include yearly, half-yearly, quarterly or monthly in advance or arrears.

Advisers can access the new product through three portals: Avelo, Assureweb and Tomas. Scottish Widows estimates that underwriting decisions will be automatic for up to 85 per cent of applicants.

The annuity will take into account lifestyle factors such as smoking, body mass index and a combination of cardiovascular risk factors. Serious and moderate conditions will also be taken into account. However, non-cardio conditions and cancer will not be considered, nor will single cardiovascular risk factors such as high blood pressure of raised cholesterol.

Enhanced annuities through Scottish Widows will be underwritten by the Reinsurance Group of America.

MM comment

It is little surprise that traditional annuity providers are looking to cash in on enhanced annuities. With the ABI code of conduct on retirement choices forcing pension providers to point out that a customer might qualify for an enhanced rate if they are in poor health, providers must decide whether they would rather risk losing the customer or offer a product themselves.

The demographics of enhanced annuity customers are very different to the healthy population. Not only do insurers have to price in the projected longevity of a generic ‘ill’ person, they have to use their underwriting expertise to identify the different illnesses they are willing to accept and the dispersion of those to balance the whole book.

Scottish Widows faces some tough competition in this market. Specialists Just Retirement and Partnership have been at it for years and, at present, consider a far greater range of illnesses than this product. Any new entrants in enhanced annuities will have to prove to advisers that they have the knowledge and expertise to be able to offer attractive rates to their clients.

The main push by Scottish Widows is to be accommodating to advisers, making it easy for them to find and consider their rates. In a world where service is key, this could prove just as important as the highest income.