Although may people will enjoy a relatively good life during their employment days, problems might start cropping up once you are retired. With pension shortfalls in many countries in Europe, there is a need for people to pursue other options to ensure that they obtain a respectable annuity rate. This is why the open market option is essential.
With the open market option, a person approaching retirement has the option to shop around for different options to convert the pension amount into an annuity. This allows one to gain more from the pension rather than depend on the default amount offered by their pension provider. So the main importance of this option is to determine whether a person gets good value pension or not.
The option was introduced in the UK with the finance act 1978. As a pension holder, you are supposed to use before you get any benefits from your regular provider. This applies both for regular and lump sum income.
With different insurance companies offering different annuity rates as they compete with each other, one can choose any offer that suits him. Normally using the open market option, people have been able to increase the amounts received with up to twenty five percent or more than what their ordinary pension provider offers.
Another advantage with this option is that you are not obligated to take a particular annuity type. In most cases, people opt for fixed annuity or conventional annuity which provides a consistent income all through their retirement. With the open market option, one can also opt for annuities with an investment risk. Such annuities boost a persons chance of receiving a higher income. However, due to the unpredictability of investments, the annuities might not go so well. This can leave a person with lesser income than the targeted amount.
One also has access to annuities linked to the medical circumstances one is under. These impaired or enhanced life annuities are normally designed to pay a higher rate to someone who might not live as long as the retirees with perfect health. This means that the retiree has certain conditions such as heart conditions, diabetes and certain types of cancer.
So, how should one go about it? Although most people believe that sticking with the company that was in charge of their pension during employment is the best option, this is not always the case. To get a better rate, you have to carry out some kind of research. This should start with your current provider. You should then use the information to gauge what others are offering. Remember, there are different factors to consider with each offer including the percentage increase for impaired or enhanced annuity.
Although the open market option presents many advantages to the consumer, most people ignore it. Pension providers might also discourage you from taking this route. However, you should know it is your legal right, so you should explore it before taking the rate offered. Remember, once you have bought the annuity, there is no going back. You cannot change the provider or type of annuity so choose wisely.