Open Market Option
Encyclopedia
The Open Market Option was introduced as part of the 1975 United Kingdom Finance Act
and allows someone approaching retirement
to ‘shop around’ for a number of options to convert their pension
pot into an annuity
, rather than simply taking the default rate offered by their pension provider.
The term OMO is now generally used to support a campaign, often led by the pensions industry and the media, to make sure people know the benefits of shopping around. The majority of people still don’t use the Open Market Option in large part because they don’t know they can or don’t realise the benefits of doing so. Retirees who don’t use the OMO and settle for the default deal offered by their pension provider, may be missing out on up to 40% more income from an annuity. This is especially important as retirees cannot change their annuity once it has been purchased.
One of the main reasons that people can get more from an annuity if they shop around is that they may qualify for what is known as an Enhanced Annuity (sometimes known as an Impaired Life Annuity) which pays a higher income to people who suffer from a range of health conditions - anything from asthma to a serious heart condition. There are also other products available that may suit people’s retirement needs better than the default deal offered by a pension provider. One of the best ways to make the most of the Open Market Option is to speak to an Independent Financial Adviser
who will explain the different options available at retirement.
The Association of British Insurers
has been working with the retirement industry to improve consumers’ knowledge of the Open Market Option. This includes pensions providers making it much clearer to their customers that they can use the OMO and that they may get a better income by doing so. However, take up of the Open Market Option is still low and there are now calls from many to make it harder for a pension scheme to transfer into an annuity by default, thereby forcing people to consider their options.
Finance Act
In the UK, the Chancellor of the Exchequer delivers an annual Budget speech on Budget Day, outlining changes in spending, as well as tax and duty. The changes to tax and duty are passed as law, and each year form the respective Finance Act...
and allows someone approaching retirement
Retirement
Retirement is the point where a person stops employment completely. A person may also semi-retire by reducing work hours.Many people choose to retire when they are eligible for private or public pension benefits, although some are forced to retire when physical conditions don't allow the person to...
to ‘shop around’ for a number of options to convert their pension
Pension
In general, a pension is an arrangement to provide people with an income when they are no longer earning a regular income from employment. Pensions should not be confused with severance pay; the former is paid in regular installments, while the latter is paid in one lump sum.The terms retirement...
pot into an annuity
Annuity (European financial arrangements)
An annuity can be defined as a financial contract which provides an income stream in return for an initial payment with specific parameters. It is the opposite of a settlement funding...
, rather than simply taking the default rate offered by their pension provider.
The term OMO is now generally used to support a campaign, often led by the pensions industry and the media, to make sure people know the benefits of shopping around. The majority of people still don’t use the Open Market Option in large part because they don’t know they can or don’t realise the benefits of doing so. Retirees who don’t use the OMO and settle for the default deal offered by their pension provider, may be missing out on up to 40% more income from an annuity. This is especially important as retirees cannot change their annuity once it has been purchased.
One of the main reasons that people can get more from an annuity if they shop around is that they may qualify for what is known as an Enhanced Annuity (sometimes known as an Impaired Life Annuity) which pays a higher income to people who suffer from a range of health conditions - anything from asthma to a serious heart condition. There are also other products available that may suit people’s retirement needs better than the default deal offered by a pension provider. One of the best ways to make the most of the Open Market Option is to speak to an Independent Financial Adviser
Independent Financial Adviser
Independent Financial Advisers or IFAs are professionals who offer independent advice on financial matters to their clients and recommend suitable financial products from the whole of the market...
who will explain the different options available at retirement.
The Association of British Insurers
Association of British Insurers
The Association of British Insurers or ABI is a trade association made up of insurance companies in the United Kingdom.-History:The ABI began in 1985 after several specialised insurance industry trade associations, including the British Insurance Association, the Life Offices’ Association, the Fire...
has been working with the retirement industry to improve consumers’ knowledge of the Open Market Option. This includes pensions providers making it much clearer to their customers that they can use the OMO and that they may get a better income by doing so. However, take up of the Open Market Option is still low and there are now calls from many to make it harder for a pension scheme to transfer into an annuity by default, thereby forcing people to consider their options.