What is the Open Market Option?
The Open Market Option (OMO) refers to the law brought in by the UK Government in 1975 to allow for increased competition between annuity providers, as a benefit to consumers. It means that even if you have held your pension with one company for your entire life, you do not have to take out a pension annuity with this company; rather you are free to choose from any company on the market, allowing you to opt for the one with the best annuity rates.
This policy encourages competition as each pension provider must strive to provide the best rates and prices in order to attract customers away from their competitors. As an overall concept it is the consumer who stands to benefit as rates are usually driven up from increased competition.
How does it work?
The OMO becomes available when you decide to apply for an annuity. Although the concept is heavily promoted, it is not widely used as many people don’t realise that they have this option available to them or feel it will be too much trouble to explore the open market for alternative annuity rates. It is a legal right for anyone to choose from a range of annuity suppliers not just that of their pension fund.
What does it mean for the consumer?
For the consumer the OMO can generally mean an increase in annuity income, as they are free to pick and choose between different annuity options depending on their individual requirements. This can particularly benefit those with health conditions which may attract a higher level of income from many annuity companies.
It also allows consumers to choose between a range of single, joint and enhanced annuities to suit their lifestyle. If they have led an unhealthy lifestyle – excessive drinking/smoking etc , then they could be eligible for an enhanced annuity which will garner them an additional income on top of what they would already receive, compared to a generally healthy individual.
How will this benefit me?
The OMO was designed to give consumers a range of options when it came to providing annuities. It helps to prevent pension companies from locking in clients and then lowering their premiums with no exit clause for their customers. It encourages healthy competition which means that you as the consumer stand to benefit.
It also gives the consumer greater freedom of choice to make an important decision – once you have picked an annuity it is usually a lock-in contract for life, and you are unable to change it down the track for a better policy if one arises.