Life assurers are stepping up efforts to persuade UK pension fund trustees to gather health records from their members, saying the disclosures could reduce the cost of bulk annuity transfers by up to 15 per cent.
Some insurers are even considering offering scheme members gift vouchers worth about £20 to overcome scepticism about why they should provide the confidential details, people close to the transactions under consideration said.
Medical underwriting is already commonplace in the individual annuity market.
Retirees who have built defined contribution pension pots can enjoy higher annuity income by agreeing to disclose medical conditions or habits such as smoking that reduce their life expectancy. Doctors typically receive fees of about £100 for providing health records with the consent of their patients.
Until now, however, medical underwriting has been virtually unheard of for bulk annuity deals, under which insurers assume the longevity and investment risk for corporate defined benefit schemes.
Members of such schemes have no obvious financial incentive to provide the detailed personal information. The insurers have traditionally relied on basic information about members such as age, postcode and estimated wealth.
“You’re dealing with a group of people, so you’re more comfortable dealing with averages,” said Simon Gadd, annuities managing director at Legal & General.
“It has taken a number of years for this [medical underwriting] to penetrate the individual annuity market. The defined benefits pension scheme is much, much earlier in that journey. But I suspect in five years’ time there will have been a reasonable number of deals where some form of medical underwriting has been done.”
Legal & General has been focusing on seeking to obtain medical details for a small number of individuals – such as former senior directors – who account for a high proportion of some schemes’ liabilities. The FTSE 100 insurer has completed some bulk annuity deals that have involved this level of disclosure.
Meanwhile, companies that provide so-called enhanced annuities for individual pensioners – under which they secure health details – are looking at entering the bulk annuity market. They include Partnership and Just Retirement.
Will Hale, director at Partnership, said the group had been in talks with about 30 schemes and maintained it was likely to sign its first deal “within weeks”.
“There’s no obvious immediate [financial] uplift for members in the DB scheme,” he said. “But actually we found that we’ve almost had between a 90 and 100 per cent take up of the engagement in the [health] questionnaires.”