Open Market Option

The Open Market Option or OMO is your right to compare annuity providers to get the best rates. You can potentially increase your retirement income by a significant amount by comparing different annuity providers. You have nothing to lose and everything to gain by shopping around between rival annuity companies. The FSA stipulate that annuity providers must inform you about your right to use the Open Market Option.

Annuity Options

There are many different options available to someone who is looking to purchase an annuity, which allow you to tailor your annuity to your personal circumstances. There are a number of choices you will need to make when deciding which annuity is right for you. Below are the main options available…

Single or joint?

A single life pension annuity pays you the maximum amount offered from your provider until you die after which no further income will be paid. These are suitable for retirees who are not married. If you are married the annuity that is likely suit you best will be a join-life annuity. These will continue to pay an income if you die before your partner does. You can make a choice over how much of your starting income you want to be paid to your partner once you pass away, which can range from 50% of the total to 100%.

Guarantee periods

Annuity guarantee periods are offered to those who wish for their annuity to pay an income to their estate, even if they die soon after the policy is taken out. Consider this – you take out an annuity and then you pass away the next day. Without guarantees the annuity provider would keep the entire pension fund, unless you had a joint-life annuity in which case only the specified amount would be paid out. To protect against this unlikely event, you can guarantee that your annuity payments will continue to be paid for a set period of time after you die. You can choose guarantee periods of 5 or 10 years, so for example if you chose a 10 year guarantee period and died after two years, your income would continued to be paid for 8 more years.

Annuity Protection

This is a new feature whereby you can stipulate an amount of money that has to be paid to you by the time you reach 75. If you pass away and this amount has not yet been paid, you can bequeath the difference as a lump sum known as an ‘annuity protection lump sum death benefit’. However this lump sum is taxable at 35 per cent. These type of annuities are also called “value protected” or “money back” annuities. Let’s take an example; if you bought an annuity with a £100,000 fund that paid out £7,000 per annum and you passed away after 5 years, you would have been paid a total of £35,000. The difference (£65,000) can then be paid out, minus tax at 35%. Annuity protection is not offered by all annuity providers and tends to be only offered for those who are eligible for enhanced annuities.

Escalation

An escalating annuity has a lower starting income but increases by a specific amount every year, such as 2%. You can specify an amount that you want your income to increase by every year or you can peg your annuity income to the RPI (Retail Prices Index). Many have argued RPI annuities are only beneficial if inflation remains very high for a long period of time. Another point to note that this is really just deferred income as there is no ‘extra’ money available as your starting income is lower.

To ensure you get the best Open Market Option annuities, complete the quote form now. Read more about FSA Annuity rates