Peter is 66 and is on the verge of retirement from his long-term job as sales director of a privately owned machine tool business. The company has a ‘defined contribution’ pension scheme and Peter is given an illustration of an income of £17,500 a year from his fund.

His adviser asks Peter about his state of health. Peter says it is good but on further questioning reveals that he has above-normal blood pressure. Though his doctor has said this is not at all life-threatening, the adviser tells Peter that this means he qualifies for an ‘enhanced annuity’. Once Peter has completed a detailed application form, the adviser gets quotes from the companies that specialise in this market and the best quote comes in at just over £22,000 a year or over 20% above the normal level.

Over his expected lifespan, Peter will gain an additional £77,000 of income as a result of obtaining the higher rate.