Nurse-led assessments key to higher annuity rates

While there hasn’t been much to celebrate about in this environment of higher interest rates, one positive is the resurgence of annuities.

From their decline and near extinction following the introduction of pension freedoms in 2015, annuities are soaring in popularity amid high interest rates and are generating far better returns.

Research by the Association of British Insurers found sales of annuities were 27% higher in H1 2023 compared to the previous year. What is more, annuity comparison quotes on the iPipeline platform hit their highest levels for a decade in Q3 and Q4 2023. Given the path of interest rates so far this year, this demand has only continued.

In 76% of cases, a higher annuity rate was achieved with a nurse-led assessment

However, with inflation returning to ‘normal levels’, expectation continues to build that a long-awaited cut to the Bank of England base rate could now be imminent.

With advisers looking to lock in competitive annuity rates before any potential change in interest rates, it’s important to have proven, repeatable methods to achieve the highest possible rate for clients.

Nurse-led medical assessments

In a recent study, we found nurse-led medical assessments return a significantly higher annuity rate than those submitted using standard online forms. In 76% of cases, a higher annuity rate was achieved – with a mean uplift of 2.5%, or £225, per year.

In fact, many cases saw an increase of 10% or more, while one case in particular saw an uplift of 33% – or nearly £7,000 of extra income per annum.

This study took place between February and May this year, with two quotes obtained from Aviva, Just, L&G and Canada Life. With rates recorded for each case and both methods, Aviva achieved the greatest difference in average annuity rates at 3.7%.

Underwriters are aware of and appreciate the due diligence that has been undertaken and are more likely to trust the data provided

What makes this approach so successful? A key factor is clients having positive interactions with fully-trained and qualified nurses, giving them the freedom and confidence to disclose information they may not necessarily volunteer otherwise.

Just as important is the nurses being fully aware of the information medical underwriters require and how this should be recorded and presented.

With the right provider of medical assessments, underwriters are aware of and appreciate the due diligence that has been undertaken and are more likely to trust the data provided. If this is then presented in a format that works best for them, there’s no reason why they wouldn’t be inclined to provide a better rate.

Even with a slight increase in assessment, underwriting and administrative costs, our study found this approach is still cost-effective. By our maths, and with average life expectancy and the average duration of annuities taken into account, an uplift greater than £10 per annum would be cost-beneficial. This was achieved by 75% of cases in our study.

Answering Consumer Duty

Given the higher returns achieved by annuities, as well as the opportunities available to combine the guarantee of an annuity with the flexibility of drawdown, it is clearly in the best interest of the client to explore this avenue.

If this route is not considered, there’s the possibility a customer could receive a poor outcome – one that is open to later challenge

In fact, there’s a pretty solid argument to say that, with the Consumer Duty requiring firms to evidence they have considered all options, not considering an enhanced annuity at annual review is unlikely to meet the new rules.

Furthermore, studies such as this, and current research, confirm the effectiveness of nurse-based medical assessments in achieving higher annuity quotations – particularly for those retirees with significant and complex health issues. Therefore, if this route is not considered, there’s the possibility a customer could receive a poor outcome – one that is open to later challenge.

Andrew Gething is managing director at MorganAsh