On reaching the minimum age of 55 years of age you may start to consider your options for establishing an income to last throughout your retirement. Usually your pension provider will send you out a wake up pack as your planned retirement date approaches. This pack will usually include a basic quote for you to take an annuity with them.
It is very important to establish the best rate that could be available to you by using your Open Market Option.
The Open Market Option (OMO) is your right to take your pension fund to another provider to purchase an annuity or alternative retirement income. As the difference between the best and worst annuity rates can be considerable, it is worthwhile taking the time to find the best possible income for your given requirements.
If you have pension funds from a number of different pension schemes it is usually beneficial to take a view of the whole pot of savings as better annuity rates can sometimes be achieved for higher fund values. Where a number of arrangements are to be used it is normal for the funds to all be transferred to the annuity provider to purchase the annuity under an Immediate Vesting Pension. This means that all funds are transferred over with the tax free cash being paid by the new provider, rather than the ceding scheme.
The rate applicable will be determined by the age, health and up to December 2012 your sex. From December 2012 to new EU Directive means that no differential in cost can be applied due to the applicant’s sex. Higher annuities are available for those that smoke and also health and lifestyle factors.
Other factors affecting the rate of your annuity will be the options that you choose such as escalating income, guarantees and spouse’s benefits. Generally speaking if you took a basic annuity with level income, no guarantee and no spouse’s benefit your income would be considerably higher than someone who chose to take an annuity increasing with RPI with a 10 year guarantee and 100% spouse’s benefit payable on death.