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.


