The Open Market Annuity Option: Shopping Around For Your Best Annuity Deal

The Open Market Annuity Option: Shopping Around For Your Best Annuity Deal

by

John T. Hughes

Imagine the scene. You’re buying a car, you have certain expectations and you have the money ready for the purchase. When you go to buy the car, do you opt for the first one that the salesperson offers you or do you shop around to see if there are any better options on the market?

You may not realise but you have the right to do the same with your annuity. Although your current pension provider may be keen for you to take their annuity offering, the law states that everyone has the right to use the ‘open market option’ which allows consumers to choose their pension annuity from any provider on the market. Some consumers find this provides them with the opportunity to review the market and ensure that they are getting the best deal for their circumstances.

Should I stay or should I go?

When you retire, you can usually take up to 25pc of your retirement fund as a tax-free lump sum which proves useful to some people for paying off mortgages or other loans. The rest can be paid into an annuity fund which will offer you a regular income throughout your retirement period. Annuities are the only financial product which you are legally obliged to purchase (you must convert your pension savings into an annuity option), they are also one of the few financial products that cannot be altered once they have been purchased.

Therefore people naturally want to find the best rate available for their circumstances. The ‘open market option’ gives people the opportunity to do exactly that. Once you have decided on the type of annuity which you would like, providers must allow you to ‘shop around’ and review other annuity rates. Reports have highlighted that in certain cases, pension incomes could be increased by up to 30pc by switching to a different provider. Obviously this is not guaranteed and rates quoted from other providers could be lower or show no difference.

Typically as your retirement approaches, your pension provider will contact you with information regarding the pension fund and the range of annuities which they can offer you. Many people simply do not realise that they have the option to shop around. Yet saving for a pension and buying a pension are separate entities therefore just because a company offers a good pensions saving scheme it does not necessarily mean that their annuity rates are going to be the best on the market.

In short, you could effectively gain yourself extra income for your retirement purely by ‘window shopping’ on the annuities market.

Things that you should be aware of

As with the purchase of all financial products, there are certain factors which you should be aware of. Most of them relate to the importance of knowing your policy inside out and making yourself aware of all the details.

Firstly, some of the older policies may not allow you to seek your annuity from another provider as the regulation has not always been in place. It is important to review your policy and seek financial advice if you are unsure whether this is an option available to you.

Certain policies charge a penalty fee to consumers who choose to change providers. This tends to be a percentage reduction to your final pension pot if you decide to take an annuity from a different provider. It is important to check these factors when taking out a pension or shopping around for annuities.

The open market option could be the more fruitful option however it may not be the easiest. In order to take out an annuity with your current provider, it could be as simple as completing one form however if you are changing providers, there could be additional paperwork and regulation checks so the process may be more time-consuming.

The concept of the open market annuity option may seem complex however with the right guidance, it could prove rewarding. If you are considering shopping around for your annuity, the first step is to seek annuities advice to find the best annuity rates for you. There are a range of methods which could help you to find the best option which vary from speaking to an annuities advisor on the telephone to using an annuity rates calculator online in order to help you estimate potential entitlements.

John T Hughes writes for

Annuity Rates UK

, a site that connects consumers to

annuity advice

they can trust.

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The Open Market Annuity Option: Shopping Around For Your Best Annuity Deal