Enhanced vs standard annuity

An enhanced annuity pays a higher income than a standard annuity if your health or lifestyle means you are likely to live a shorter time. Insurers price annuities on life expectancy, so conditions such as heart disease, diabetes or cancer, and factors such as smoking or being overweight, can all push the income up. The extra is not small: Which? found rates between 6% and 15% more than a standard annuity on a £100,000 pension for an overweight 65-year-old smoker on medication for high blood pressure and high cholesterol¹, and reported that sharing health information could mean as much as 30% more than a standard annuity².

The catch is that many people who qualify never find out. The FCA's own consumer research found that DC pension savers with medical conditions or lifestyle factors that may shorten life expectancy are often unaware of the additional income from an enhanced annuity³. The health questions sit on the quotation form, and you only see the higher figure if you answer them.

An annuity is a one-off purchase that cannot be reversed. Once bought, you cannot change your annuity provider⁴, so the quote you accept is the income you live on for the rest of your life. That makes the shopping-around step, and the health questions on it, the most valuable part of the process.

An enhanced annuity pays more if your life expectancy is shorter

An annuity converts a pension pot into a guaranteed income for life. The insurer works out how long it expects to pay you, and the shorter that period, the higher the income it can offer on the same pot. A standard annuity assumes average life expectancy. An enhanced annuity, sometimes called an impaired annuity, prices in a specific health condition or lifestyle factor that points to a shorter lifespan.

Age UK describes these products plainly: they pay out a higher income if your health or lifestyle may shorten your lifespan⁵. Macmillan's guidance for people living with cancer makes the same point from the other direction, noting that an enhanced annuity generally pays out more than other types of annuities⁹.

The reason the gap matters is that the difference is permanent. An annuity income is fixed at the point of purchase, so a missed enhancement is not a one-off loss but a lower payment every year for the rest of your life. The FCA research is blunt about how often that happens: savers with conditions that shorten life expectancy are often unaware the enhanced option exists³.

It is also worth knowing that annuities are no longer the default. Rules changed in 2015 to allow people to access money directly from their pension pot, ending annuities as the most common way to take retirement benefits. Sales have since recovered: annuities rose 13.2% to 100,144 in the year to March 2026. For anyone who wants a guaranteed income, the enhanced question is the one that decides how much that guarantee is worth.

Who qualifies: health conditions and lifestyle factors

The list of qualifying conditions is much wider than most people assume. It is not limited to serious illness. Age UK's guidance names three broad groups: people with existing health conditions, smokers, and people who are overweight⁵. Which? puts it in the same terms, saying that if you are in poor health, smoke or are overweight, you will be expected to live for a shorter time, so you are likely to get a higher income¹.

Legal & General, which sells annuities, says a client may receive a higher income, also known as an enhanced income, if they have certain health or lifestyle conditions, such as smoking or being overweight⁶. It adds that a client with a qualifying health or lifestyle issue could be eligible for an enhanced annuity rate⁶.

Conditions that commonly attract an enhancement include:

• Heart conditions, including a previous heart attack
• High blood pressure or high cholesterol, particularly where medication is taken
• Diabetes
• Cancer, including some cases now in remission
• Respiratory conditions such as COPD
• Kidney or liver disease
• Neurological conditions
• Smoking, at any level, and being overweight

The insurer decides what counts, and each one applies its own underwriting. Two people with the same condition can be offered different uplifts depending on age, severity, how long they have had it and what else is on the form. The only reliable way to find out is to answer the questions and compare the quotes that come back.

How much more: typically 6% to 30% above a standard annuity

The published figures give a range rather than a single number, and the range is wide because the uplift depends on how much the condition shortens life expectancy.

Which? tested quotes for an overweight 65-year-old smoker on medication for high blood pressure and high cholesterol, and found the rates offered were between 6% and 15% more than a standard annuity, based on a £100,000 pension¹. In separate reporting, it said sharing health information with a provider could mean as much as 30% more than a standard annuity².

The same research shows how much the shopping-around step is worth on its own, before any health questions. For a healthy 65-year-old, the lowest rate was £6,648 a year, and the highest rate was 10% higher than the lowest rate¹. That gap exists between providers quoting on identical health information, which is why the range of quotes is wider than a single provider's illustration suggests, even for someone with no conditions to declare.

Two cautions on these figures. First, they are illustrations based on a £100,000 pension, not promises; your own pot size changes the cash difference even when the percentage is the same. Second, the 30% figure is the top of a reported range, not a typical outcome. The honest position is that an enhancement is usually worth having, and how much it is worth depends on facts only the insurer can assess.

Enhanced or standard annuity: how the income compares

The enhanced question sits inside a bigger choice about what kind of annuity to buy, because the shape of the income matters as much as the starting figure.

A level annuity pays the same amount every year and offers a higher starting income than an escalating annuity¹⁰. An escalating annuity increases each year, for example by 3%, but it will start at a much lower rate¹⁰. An inflation-linked annuity goes further and tracks inflation, and it too starts at a much lower rate¹⁰. Legal & General, for its Pension Annuity and fixed term annuities, lets a client choose an increase capped at 5%, referred to as the Limited Price Index⁶.

The trade-off is straightforward. A higher starting income buys more now; an escalating income buys more later. Over a long retirement, an income that never rises loses ground to inflation every year. Over a short one, the escalating version may never catch up with the level version it started below.

An enhanced annuity can be combined with any of these shapes. The enhancement raises the starting point; the escalation choice decides how it moves afterwards. Someone with a shortened life expectancy may reasonably weigh a higher starting income more heavily, but that is a judgement about their own circumstances, not a rule.

There is one more comparison worth making before buying anything. Some older policies carry a guaranteed annuity rate, and staying with the original provider and choosing their annuity could secure a rate of between 7% and 11% on guaranteed annuity rate pensions from the 1980s and 1990s¹¹. Where one of those exists, it can beat anything available on the open market, and it is worth checking before assuming a new quote is better.

How to apply: health questions on the quotation form

Applying for an enhanced annuity is not a separate process from buying any annuity. The health questions are part of the quotation form, and answering them is what triggers the higher rate.

Legal & General's guidance for people dealing with certain health issues says they can get enhanced annuities with better rates, based on medical questions¹². In practice the form asks about diagnosed conditions, current medication, smoking history, height and weight, and sometimes family medical history. Some insurers ask for a report from your GP, and some do not.

The steps are:

1. Check what your current pension provider is offering, because they may still offer a higher payment than you expect⁵.
2. Ask for quotes on the open market, answering the full medical and lifestyle questions on each form.
3. Compare the incomes offered on identical assumptions, including any death benefits and escalation.
4. Check the provider is authorised by the Financial Conduct Authority before you commit¹³.
5. Accept one quote and set up the income.

Two practical points. Answer the questions fully and accurately: an enhancement you do not claim is money you never receive, and an inaccurate answer can cause problems later. And if your health changes between getting a quote and buying, say so, because it may improve the rate.

Shopping around beyond your pension provider

You do not have to buy your annuity from your pension provider, and you can shop around⁷. This is the single most repeated piece of official guidance on annuities, and the evidence above shows why: even among healthy 65-year-olds, the highest quote was 10% higher than the lowest¹.

The process starts with your own provider, because they may still offer a higher payment than you expect⁵. From there, the open market option lets you take the pot elsewhere. You can use your pension pot to buy an annuity from an insurance company¹⁴, and there is no requirement to stay where the money currently sits.

On cost, you can buy an annuity without paying upfront fees by using a broker, as brokers are often paid commissions¹⁵. That does not make the advice free; the commission is reflected in the rate. The practical consequence is that the comparison to make is between the incomes offered, not between headline fees, because a "free" broker quote and a direct quote are not directly comparable until you see the numbers.

If you want help understanding the options before committing, Pension Wise offers free guidance on pension options, and it is worth using before any irreversible decision. The decision itself cannot be reversed: once purchased, you cannot change your annuity provider⁴.

What happens to the income when you die

With many types of annuity, payments will stop when you die¹⁶. That is the default, and it is the reason the death benefit question has to be settled before purchase rather than after.

You cannot pass on income from an annuity after your death unless you arrange this from the outset, for example by choosing a joint-life annuity¹⁰. A joint-life annuity pays an income to your spouse or partner after your death, but this is usually at a lower rate⁵. Where it is set up, payments will continue to your named beneficiary, usually at two thirds or half of the original payments¹⁶.

There are other options. A value protection feature returns a lump sum if you die early, and Which? has described it as one of the less well-known annuity choices¹⁷. A guaranteed minimum payment period does something similar for a fixed number of years.

On tax, joint life annuities that continue paying income to a chosen beneficiary after your death will continue to be exempt from inheritance tax under the government's proposed changes¹⁸. The wider reform is that from April 2027 the government proposes that unused pension pots and death benefits will be included in your estate for inheritance tax, with exclusions for joint life annuities and spousal benefits¹⁸. Anyone weighing an annuity against drawdown should treat that date as material.

Where an enhanced annuity cannot be undone, and scam risks

The defining feature of an annuity is that it is a one-way purchase. Once purchased, you cannot change your annuity provider⁴. There is no cooling-off period that undoes a bad rate years later, and no way to move the money if your circumstances change. That is why the health questions and the shopping-around step carry so much weight: they are the only chance to get the decision right.

Pension scams are on the increase⁷. The pattern to watch for is contact out of the blue offering to release your pension early, to review your annuity, or to move your pot into an investment with a promised higher return. Investment scams carry a specific warning: you could lose all your money and may not be protected by the Financial Ombudsman Service or Financial Services Compensation Scheme if something goes wrong¹⁹. Criminals may also contact you again pretending they can recover your money for a fee¹⁹.

If something has gone wrong, the protections are specific:

• The FSCS can only protect you if the Financial Conduct Authority has authorised your pension provider¹³.
• FSCS protects pension advice, so compensation can be paid if your adviser fails²⁰.
• Annuities are covered at 100% by the FSCS if the firm failed on or after 3 July 2015⁸.
• If you are getting a pension, or thinking of changing it, the FSCS suggests asking whether it protects your pension, how much of your pot is protected, and whether you are still protected if you buy an annuity²¹.

On tax, you pay income tax if your total annual income, including any pensions, adds up to more than your Personal Allowance²². If you take a 25% tax-free lump sum before buying the annuity, that part is not taxed²³, but taking it can trigger the money purchase annual allowance and reduce what you can pay into a pension afterwards. If you are considering using part of your pot to pay for financial advice, that is a separate decision with its own tax treatment.