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The Open Market Option
If you are close to retirement, you have probably heard of an ‘Open Market Option’ or OMO, but what is it and why is it so important?
What is it?
It really is quite simple: the Open Market Option allows you to take your pension fund and use any retirement solution from any provider you like. It gives you complete flexibility to choose how you take an income in retirement.
In the vast majority of cases, a retirement solution means buying a Lifetime Annuity. Therefore the Open Market Option means you can shop around for the best Annuity rate.
It is unlikely that your existing pension provider will offer you the best Annuity rate, but only by shopping around, looking at other providers and potentially using the Open Market Option will you know who does offer you the best Annuity rate.
Is it really worth shopping around?
Yes, definitely. There can be as much as 30% difference between the best Annuity provider and the worst, if you just accept the Annuity offered by your existing provider you could end up with less income, each and every year, than if you had shopped around.
Furthermore, by shopping around you will also be able to find out whether due to health or lifestyle issues you qualify for an Enhanced Annuity, which may increase your income still further.
Does everyone use the Open Market Option?
No, but they should.
Only around a third of people who buy an Annuity use the Open Market Option, which means two thirds of people have not shopped about for the best Annuity rate or checked whether they qualify for an Enhanced Annuity.
Once you have bought an Annuity it can never be changed; not shopping around and getting an uncompetitive deal can be an expensive mistake, which you will have many years to regret.
Why is it so important?
There are a few reasons:
- Using the Open Market Option allows you to consider all the different retirement income options. Afterall, a Lifetime Annuity may not be suitable for you. A Fixed Term Annuity, Investment Linked Annuity or indeed Income Drawdown might be a better options
- If you do decide to buy a Lifetime Annuity, shopping around and using the Open Market Option is the only way of ensuring that you get the best possible Annuity rate
- You should always check whether or not you qualify for an Enhanced Annuity. The best way of doing this is use the Open Market Option
Does it cost anything?
No, your existing pension cannot charge you for using the Open Market Option.
Furthermore, most Independent Financial Advisers will not charge you for shopping about for the best Annuity rate or checking whether you qualify for an Enhanced Annuity.
In summary, use the Open Market Option. It is the only way of guaranteeing you end up with the best possible retirement option for your circumstances and the best Annuity rate if that is the option you choose.