Taxman makes administrative error

The first half of the year saw a 41% increase in the sale of enhanced annuities as a growing number of people attempted to maximise their pension income.

Research by Towers Watson revealed that sales of the product - which pay higher rates to people with certain medical conditions or lifestyle factors - reached £1.26 billion during the six months to the end of June.

Sales reached a record level of £582 million during the first three months of 2010, only to be surpassed with ones of £676 million in the second quarter, according to the group.

People who have a personal pension or belong to defined contribution pensions need to convert their pension pot into an annuity - giving them with an income for the rest of their life - when they retire.

Enhanced annuities, also known as impaired life annuities, pay higher rates to people with certain medical conditions, such as heart problems, or to those who smoke or are overweight, to reflect expectations that they will not live for as long as other people.

They were first introduced in 1995 and now account for more than a third of all annuities sold in the UK.

However there are concerns that the rise in the popularity of enhanced annuities will lead to lower annuity rates for people who do not qualify for them.

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