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.