Open Market Option

When you are retiring your pension company will write to you offering their annuity.

Their offered annuity may not be competitive and this is where the Open Market Option (OMO) come into play.  It allows you to shop around among other annuity providers to obtain quotations.  

This is not really an exercise that you should undertake without some advice or at least considerable research and we would always recommend you seek advice from an IFA (Independent Financial Adviser).  Please see note at the end as this is a field that requires an IFA to have special permissions to advise

An Open Market Option could  increase  your pension income by as much as 30% each year for the rest of your life.

An OMO means an annuitant is able to obtain the compulsory purchase annuity (pension annuity) from any provider in the market.

This applies to a With Profits annuity as well as a standard annuity.

It is estimated that only one third of those annuitants who could and probably should have shopped around actually do. Many will have missed out on  thousands of pounds every year for the rest of their lives. 

Your existing pension provider is unlikely to point out the benefits of shopping around.  They want to retain your funds and promoting the Open Market Option to you is not in their interest.

Securing the correct pension annuity is very important as once bought, they cannot be switched or altered  the rest of the annuitant's life.   When the capital from the pension fund has been invested in an annuity, there is no opportunity for any of this capital to go to any beneficiary on the death of the annuitant.

Investing in an annuity is fairly straightforward.  Investing in the correct annuity for your personal circumstances is something that requires some thought and planning..

Being alone in the world with no dependents or family will mean that your considerations and the desired benefits of an annuity will be different to someone with a spouse.  The Spouse may or may not have pension of their own. 

Add to this that if you are in ill health, a smoker or overweight you may be able to obtain an impaired life annuity (this will mean a higher pension payment)  and you can see that getting professional advice will ensure you get the maximum benefits from your pension fund that meet your personal circumstances.

The best annuity rates offered by providers often change on a weekly basis factors that influence these are competition, interest rates, the annuity providers cash position and their book balance among others.

Seek out an Independent Financial Adviser (IFA) that has the appropriate qualification and specialist permissions from the FSA to advise on pension issues.

For further reading Dr Ros Altman has an excellent article on Open Market Options.