There are certain differences between enhanced annuities and enhanced lifetime mortgages although on the surface one can be forgiven for getting confused between the two.
The object of enhanced annuities is to provide an income stream from your private pot on the date of your retirement. You have the option of taking a tax free lump sum in cash and the rest of the pension pot is then put aside to provide you with a monthly income stream for the rest of your life. If you have a shorter life expectancy due to ill health then you will be entitled to a much higher income stream. Health is assessed and you will still fill in a lifestyle questionnaire.
Enhanced Lifetime Mortgages
The difference between enhanced annuities and enhanced lifetime mortgages is that the latter is dependent on the value of your home as opposed to your pension pot. Your health is still used to actualise your life expectancy as with an annuity but the amount you receive is based on the value of your home and your life expectancy. The similarity of the health eligibility is the same as for enhanced annuities.
The enhanced annuity market has now led to a market for enhanced mortgages. The providers during their experience of the annuity market brought about the provision of enhanced lifetime mortgages on the same principle and the effect has been a successful creation of a mortgage market as more people are now retiring after a splurge in the housing market in the seventies and eighties. Studies have shown that people are now paying off their mortgages and as more people are now remaining in their homes, people are sitting on assets that could be liquidated and money can be made on these assets.
As recessions have bitten, people stopped putting extra cash into their pension pots in order to keep the roof over their heads. In essence they kept their biggest asset with a view to using the value of their homes to provide an income in their later years. The saying “my home is my pension” comes to mind and it is on this basis the providers opened up the financial product that is the enhanced mortgage market.
The market for enhanced annuities was born from the studies of the baby boomers who have been retiring for over two decades now and with more than 2-3 million due to retire in the next few years, this market is now extremely busy.