Before reaching your retirement, you will be able to receive two pieces of information from the provider of your pension:
- The value of your pension fund
- An annuity quotation
An annuity is a product that consumers can purchase when you retire. It is created to provide a guaranteed income for the rest of your life. However, this is not the only way that you can take an income away from your pension pot.
Once you decide to acquire an annuity, you do not have to go with the quote you are given by the provider of your pension. Instead, you can shop around and compare various annuity rates: this is what the “Open Market Option” actually means.
These are the reasons why you should shop around for your annuity:
- There are a lot of variations in annuity rates. This means that shopping around for the best one is important. You could get up to a maximum of 40% more income in some cases.
- Later on, you will possibly not be allowed to swap providers or swap annuity. So your decision will affect your life. It is therefore important that you are getting the best annuity before purchasing.
Get personalised annuity quotations
Always attempt to get quotes that take your lifestyle, medical, history, and health into consideration. If you smoke or suffer from bad health, you may be qualified to receive a higher income in retirement.
Do not automatically discount what your pension provider gives
Even though it is important to shop around, this does not necessarily imply that what your pension provider offers will be uncompetitive, so it is necessary not to cut this quote straight away. For example, if you possess an older pension, you may be granted a Guaranteed Annuity Rate (GAR). Annuity rates have decreased over time, so a GAR may be a lot higher than the best annuity rates presently offered in the open market (your GAR will have been set when you took out the pension).
You should opt for professional advice if you are in any way not sure of which annuity is best.
Buying an annuity is just an option that is available in retirement. Rules that came into effect in April 2015 will give you much more flexibility around how you take your pension income.