The number of retirees using the open market option for best pension annuity rates is falling, according to the Association of British Insurers (ABI). The take up rate of the valuable open market option (OMO) among annuity purchasers is actually receding as it fell further to just 34% in the third quarter of this year, according to the ABI. Their latest figures indicated that the OMO take-up rate fell to 34% in the third quarter of this year, compared with 37.5% in the same period last year. According to their figures, just 0.5%, or 358 out of 73,562, of retirees who purchased an annuity from their existing pension company went and bought an enhanced annuity, an income increased above the standard rate because of reduced life expectancy. By comparison, 24% of retirees who exercised the open market option bought an enhanced annuity.
Nigel Callaghan, analyst at Bristol-based IFA Hargreaves Lansdown, said that these ABI annuity figures are a shocking indictment of the current system. He added that the fact that only 0.5 per cent of retirees in the whole of the UK were lucky enough to buy an enhanced annuity contract from their existing pension company and that the proportions who exercise the open market option is down to 34% and still falling is conclusive proof that the annuity system we have in the UK is not fit for purpose. All this indicates that many, many, retirees are missing out on higher pension annuity rates.
The Pensions Income Choice Association (PICA), the pension industry group set up to raise customer awareness of the OMO at retirement and to lobby for change, is currently lobbying the government to change the rules and make the OMO the automatic default, to help many more people access better annuity rates. The group hopes this will prevent insurance companies from selling uncompetitive retirement related products. Stephen Lowe, a director of Living Time and a member of PICA, said that this latest data showing the proportion of retirees exercising their open market option records a further unfortunate decline, and this is extremely concerning and demonstrates that industry policymakers must now intervene to drive forward positive change to ensure future retirees benefit from the billions of pounds available to them by shopping around utilising the OMO for the most appropriate retirement solution.