Long live the open market option (OMO), but should we change the way it works? There is an ongoing debate amongst industry experts for the OMO to be the ‘default’ for those approaching retirement. The OMO is the option a person has at retirement to use their pension fund to shop around for annuity quotes to find the best annuity rates for their circumstances.
The OMO is 30 years old but it still isn’t being acted on by sufficient people. Recent research gives a really damning insight into what people know about pension options and general retirement knowledge. Most retirees who took part in the research had taken the default pension annuity offered by their pension scheme. Some said they had no recollection of making any particular decisions at retirement.
The OMO doesn’t work because it only gives the illusion of choice, and it only focuses on the lifetime annuity. The only choice therefore is an extra few pounds a month, but retirees will only go ahead if they believe the extra income is worth the trouble, which clearly many don’t.
The current OMO is based on the assumption that lifetime annuities are the best option for people and that retirement age is the optimum time to lock in. However, with bigger pension funds, longevity and a host of flexible options, this assumption is wrong.
What should happen is that most suitable retirement solution is found for the retiree and at the optimum time. The focus should not be on lifetime annuities, but embrace impaired life annuity and enhanced annuity contracts, fixed-term annuities, both traditional and guaranteed income drawdown plans, with-profits annuities and unit-linked annuities, phased drawdown and even equity release.
Financial advice is key, and this is the message of this website. Retirees should not left at the mercy of a pension provider keen to flog for a profit its’ own lifetime annuities.
