Financial advice - Pension Annuities and the Open Market Option

An pension annuity is another name for pension income.  Once you have bought an annuity, there is no going back, so it has to be right first time.

By shopping around, you can increase your income by up to 20%, usually at no cost to you.

If you are not in the best of health, you may be eligible for an annuity called an “impaired life” annuity.  If you smoke, an “enhanced” annuity may be available.  These products pay better rates because the annuity providers expect to pay the annuity over a shorter period.

Open Market Option

With most pensions, you automatically have what is called an “open-market option” (OMO).  This means that you don’t have to take the pension offered to you by your pension provider, but have the right to take your pension fund to another provider to obtain a higher annuity rate, usually at no cost.

Pension providers are obliged to remind you of your right to take the OMO. 

If you belong to a company money purchase or AVC scheme, the scheme trustees may be responsible for buying the annuity.  Do not be afraid to ask what steps they have taken to obtain the best rate.

Using the OMO is usually a good idea.  However, some providers offer a guaranteed annuity rate on pension funds built up with them – this could be a far higher rate than any currently available, so check your position before you take your fund to a new provider.

Also watch out for any charges if you exercise OMO.  In general, there shouldn’t be any if you retire at the original planned retirement date, but some providers make charges if you retire earlier or later.