For every 'impaired life' that opts out of the annuity pool, the rates for the majority (ie, those with normal life expectancy) are diluted a little bit more. So, while the growth of awareness of enhanced annuities is great for those who benefit, it means more downward pressure on annuity rates for the healthy.
Steve Webb, our pensions minister, is fond of enthusing about the benefits of enhanced ill health annuities, recently arguing that they can offset the rise in state pension age. But this rather crassly overlooks the fact that enhanced annuities for those who qualify for them are detrimental to everyone else who doesn't.
Income drawdown, on the other hand, gives equal income opportunities to all life expectancies - income will only vary depending on growth of the underlying portfolio. But drawdown is no panacea for the healthy - with investors at their five-year reviews facing up to 50 per cent drops in the amount of income they can withdraw. The situation is now so bad that a standard annuity offers a higher income than maximum drawdown.
Capped drawdown introduced in April 2011 limits drawdown to 100 per cent of the Government Actuary's Department (GAD) rate, down from 120 per cent of GAD. The GAD rate rises and falls with UK gilt yields, which have fallen in recent months.
Sipp provider AJ Bell has been lobbying the Treasury to reinstate the 20 per cent uplift with encouraging results - Steve Webb appears to be, at least, looking into discrepancies within income drawdown. But if you are in good health and want to retire, this year there are no easy solutions.
