A longer version: how much annuity income might you be able to get by spending your pension fund via the open market option (OMO)? This is the option you have at retirement to move your pension fund from the company you have saved with to another annuity provider to get better annuity rates for your circumstances.

Let us assume there are six different sets of annuity rates out there; A, B, C, D, E, and F. Precise figures don’t really matter. The thing is, though, you could be entitled to any of them. A being the lowest, and F being the highest. Confused? Let me explain….

Firstly, we’ll assume you are using the OMO. ‘A’ could be the lowest rates available when shopping around for an annuity.

‘B’ could be the annuity rates available from your current pension provider, possibly slightly higher.

‘C’ could be the annuity rates available if you are a regular smoker.

‘D’ could be the rates available if you have a mild form of ill health, a mild medical condition which could shorten your life expectancy.

Then we have ‘E’, which represents enhanced annuity rates if you have a more serious medical condition that could shorten your life expectancy even more.

And then we have ‘F’. ‘F’ represents a very serious medical condition or conditions that could have a really damaging effect on how long you might live. This puts you into the impaired life annuity category.

From an annuity providers point of view the less time you are expected to live in retirement the more they reckon they can pay you each year until you do die. Because they pay out on these annuities for a reduced period of time.

So, there is a range. ‘A’ could be the lowest annuity rate on offer to you, and ‘F’ could be the highest. It depends on your circumstances, and you could fit in anywhere between ‘A’ and ‘F’. The thing is, though, the gap between the lowest and highest could be substantial. The highest could be 80% more than the lowest for example. In figures, this could mean the difference between an annual annuity income of £3000 per year and £5400 per year. A huge figure.

You really do need to find out where you fit between ‘A’ and ‘F’. Take advice, find out. It could really boost your retirement income.

Perhaps better put: do you, or have you in the past, suffered from ill health? If the answer is ‘yes’ there is every chance you will qualify for a higher annuity income. Increased annuity rates will apply and these could be anything from 10% to, well, who knows. If you are really ill the increase you receive could be very substantial.

The type of annuity you will be eligible for will be an enhanced annuity or an impaired life annuity, and you will need to put in a little more effort to get one. Be prepared to provide details of your condition, and any medication you are on, i.e. more paperwork. It is worth it, perhaps a few hundred pounds or a few thousand pounds more per year in your retirement ‘pay packet’.

Not enough people end up with these types of annuities, even though they are eligible. Make sure you don’t lose out.

You do have options with your pension annuity purchase when you retire. It is likely that your income needs are going to fluctuate over the next few years and, when you retire, your household income will drop.

And, when you retire what about risk-taking? Probably not with the state of the markets at present.

What about your state of health? Might you qualify for increased annuity rates via an enhanced annuity or an impaired life annuity? These things need to be considered, especially when you are planning your retirement finances.

We have an issue with longevity; people are living longer these days, but they don’t always spend that time in good health. If you were to get ill later on in retirement, you could end up qualifying for enhanced annuity rates then. It’s a big consideration for people in their 50s and 60s now who are thinking about buying a pension annuity. Very often they will be in good health and so will be offered ‘healthy life’ rates.

Your health could deteriorate later on in retirement? You can’t go back and re-negotiate your pension annuity terms. If you are concerned about this you could consider fixed term annuities. These plans offer a guaranteed fixed-term income and a guaranteed return at the end of the plan term. Unlike a lifetime annuity, you are not tied in so you can look around at other options at a later date when the plan comes to an end. You can also choose your annuity income level at outset, between £0 and the maximum allowed by current legislation. This is around 20% higher than a typical lifetime annuity rate.

So, it goes to show, there are options around. For a more comprehensive analysis seek advice.

When you approach retirement you will receive from your pension provider a ”wake-up pack”. They have to send you one by law in advance of the maturity of your pension plan, and it contains information on all the retirement and annuity options open to you when your plan comes to an end.

Not all providers are good at this, and the Financial Services Authority (FSA) recognises this and has recently criticised some pension providers for the poor quality of their wake-up packs and the fact that they don’t clearly point out the benefits and availability of the open market option (OMO).

The OMO gives you the right to shop around for the best retirement income product, which may or may not be a pension annuity. Your pension provider is offering a guaranteed annuity income for the rest of your life, known as a lifetime annuity (and they only quote on a single life basis), in return for your pension fund, but they are not the only insurance company you can choose from, and there are other options to consider.

Interestingly, the difference between the best annuity rates and the worst annuity rates on the open market can be as much as 10-15%. You could qualify for even better rates depending on certain medical and lifestyle issues, such as whether or not you smoke. Typically, these are known as enhanced annuity rates.

You do have to be careful what you sign up for because there is no going back; you can’t normally  cancel a lifetime annuity or change the benefits later on if your circumstances change.

Technology specialist, Assureweb, has launched a new quick annuity quote service free to advisers. It includes postcode and smoker rates and aims to help advisers with their initial annuity research for clients.

They are also developing a detailed annuity quotation service to be available early next year. It will support the full range of pension annuity quote options, including conventional annuities and with-profits annuities.

Assureweb aims to allow advisers to provide added benefits for clients by helping them to obtain the best enhanced annuity rates in seconds by incorporating a comprehensive medical and lifestyle questionnaire.

They have increased the number of annuity providers offering real-time quotes by adding Partnership and Just Retirement to the list of those quoting on this service. More annuity providers will sign up in the new year.

Commercial director Ian Teague stated that Assureweb are committed to offering advisers the most cost efficient way of sourcing and matching annuity products to suit their clients’ needs. Further, he states that with the ever growing grey market, there will undoubtedly be an increasing demand over time for better services for advisers and their clients. This new service enables advisers to research and then select the best annuity quote or product solution to suit their clients, he added.