This week Rosamund Derry and Chris Rowe talk about the benefits of shopping around for that open market option pension annuity.

If buying an annuity is on your financial 'to do' list, you may well have been studying the paperwork from your current provider to see what they can offer you.

You may have noticed amongst those reams of paperwork a statement about how you could consider the open market option for your annuity. On the other hand, it's entirely possible you missed this vital piece of information: insurance companies are not famed for promoting it.

Alongside taking on a mortgage, buying an annuity is probably one of the most important financial decisions you can make. What you choose to do with your pension pot has a huge impact on your financial circumstances for the rest of your life. Get it wrong, and you could have to cut back on some of your retirement dreams. Get it right, however, and you could be better off by thousands of pounds.

When you're approaching your nominated retirement date it's common practice for your existing provider to very kindly write to you and offer you an income from your hard earned retirement pot. What they often fail to mention, however, is the obligation they have to tell you that you may well be better off by exploring the options that different providers can offer you. More importantly, they are also obliged to inform you that if you are a smoker or in poor health, you may in fact qualify for an enhanced annuity, increasing your income further still. The fact remains though that few people are aware of this and so miss out on a better income. More about that further down.

So what exactly is the ‘open market option’ and how could you benefit from it? Simply put, it means that you have the right to take your pension pot to the open market and choose an annuity from whichever provider will offer you the best rates. Although there has been much in the news recently about falling annuity rates, if you shop around and use the services of a fee-based independent financial adviser, you can find something to suit you.

Once you make your decision to purchase your annuity, it isn't something that you can change six months down the line, so it's vitally important to review your options. In a recent case, we were able to help a client achieve an annuity income that was 26% more than the income they had been offered from their pension provider.

That’s 26% a year extra each year for life.

Are there any other ways you can ensure you get the best annuity rates possible? There are and this is where you'd also be well-advised to take independent advice from a whole of market financial adviser. Moving onto the cheerful topics of mortality and life expectancy, your health and lifestyle can have a major impact on the level of income on offer to you.  What you may be surprised to hear is that in virtually every case, any health or lifestyle issues you have will actually affect you for the better.

When you are applying for an annuity, always declare any existing medical conditions and, importantly, whether you are or have been a smoker or whether you take any medication. There are several annuity providers that will offer enhanced rates if you are a smoker.  In terms of your health, conditions which are expected to affect your life expectancy will again boost your income, so full disclosure of any existing conditions to an independent adviser will allow them to be considered.  Expect to be required to quote diagnosis dates and details of any prescribed medication.

Although it may seem the easiest option to take what your current provider is offering you, it may not be the best value. Take a look at what the open market has to offer you; after all, it's your money and your savings, and your retirement to look forward to. Make sure you get the very best deal.

For more information about your pension and annuity options, call Worldwide on 0845 230 9876, e-mail or take a look at our website

Worldwide Financial Planning Ltd are authorised and regulated by the Financial Services Authority. 'The FSA does not regulate Credit Cards, Will Writing and some forms of mortgage and Inheritance Tax Planning.'

Information given is for general guidance only, and specific advice should be taken before acting on any suggestions made.
All information is based on our understanding of current tax practices, which are subject to change.

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