Open Market Option

What is the open market option?

The open market option relating to retirement annuities means that you, the consumer, can choose to shop around in the insurance market to get the best possible deal on your annuity. Having the open market option means you can get the best possible deal for your pension fund to provide you and your family with a guaranteed monthly retirement income for the rest of your life.

New legislation that was passed in the mid-70s ruled that, on retirement, 75% or your pension fund is converted into a retirement annuity. This gives you a regular monthly payment, which is calculated at the time that you take out the annuity. You cannot switch between annuities, so it’s important that you take advantage of the open market option to make sure you get the best deal at the start.

The open market option gives you the chance to compare the different annuity rates from different annuity providers, so why not take advantage of it?

The open market option for couples

A single life annuity pays a higher level of income than a joint life annuity, but stops when you die. Most couples prefer to opt for a joint life annuity. This means that your partner will inherit your pension payments if you die first. You can choose how much income your partner will receive after you have died. For example, a 50per cent joint life annuity means that when you die your partner will receive half of your remaining pension for the rest of their life.

The open market option makes it possible for you to shop around for a joint life annuity in just the same way as an individual can get a range of quotes on single life annuities.

The open market option and guaranteed annuities

If you take out a guaranteed annuity, this means that you protect your annuity after your death, making sure that your partner is financially secure. Most couples guarantee their annuities for five years after death. If, for example if you were to die two years after buying your annuity, your partner would still receive an income for the remaining three years. Products and rates vary so take advantage of the open market option and do some shopping around for the best guaranteed annuity rates on offer.

Money back annuities and the open market option

Recent government changes have made life much easier when it comes to planning your pension income options for your partner. If you die before you reach the age of 75 your partner is entitled to the sum of money that hasn’t been paid out as an annuity. Not all pension providers offer this valuable option, sometimes also called annuity protection. It therefore pays to exercise your open market option and get a range of annuity protection quotes.

Using the open market option and protecting your retirement income

When taking out a pension annuity, you also have the option to build in annual increases in your pension annuity rates to account for inflation. By using the open market option, you can compare the annuity rates offered by providers who index link their pension annuity rates to the Retail Price Index. This means that your annuity income is guaranteed to keep pace with the cost of living.

Some people choose to increase their retirement income with a selected annual percentage rate. These types of plans are called escalating annuities because they start off by paying you a lower rate but over several years you will benefit from a higher annuity rate. The open market option still applies – why not fill in our annuities calculator and find out what your options could be?