The Open Market Option (or OMO) is a British government regulation that allows someone approaching

retirement Retirement is the withdrawal from one's position or occupation or from one's active working life. A person may also semi-retire by reducing work hours or workload. Many people choose to retire when they are elderly or incapable of doing their j ...

in the United Kingdom to ‘shop around’ for a number of options to convert their

pension A pension (; ) is a fund into which amounts are paid regularly during an individual's working career, and from which periodic payments are made to support the person's retirement from work. A pension may be either a " defined benefit plan", wh ...

pot into an

annuity In investment, an annuity is a series of payments made at equal intervals based on a contract with a lump sum of money. Insurance companies are common annuity providers and are used by clients for things like retirement or death benefits. Examples ...

, rather than simply taking the default rate offered by their pension provider. The option was introduced as part of the 1975 United Kingdom

Finance Act A Finance Act is the headline fiscal (budgetary) legislation enacted by the UK Parliament, containing multiple provisions as to taxes, duties, exemptions and reliefs at least once per year, and in particular setting out the principal tax rates f ...

. The term OMO is generally used to support a campaign, often led by the pensions industry and the media, to make sure people know the benefits of shopping around. The majority of people still don’t use the Open Market Option in large part because they don’t know they can or don’t realise the benefits of doing so. Retirees who don’t use the OMO and settle for the default deal offered by their pension provider, may be missing out on up to 20% more income from an annuity. This is especially important as retirees cannot change their annuity once it has been purchased. One of the main reasons that people can get more from an annuity if they shop around is that they may qualify for what is known as an

Enhanced Annuity Enhanced annuity is a type of life annuity that provides a higher than normal level of income to the purchaser because the buyers life expectancy is shorter than average. There are many different types of annuity that one may purchase on approaching ...

(sometimes known as an Impaired Life Annuity) which pays a higher income to people who suffer from a range of health conditions – anything from asthma to a serious heart condition. There are also other products available that may suit people’s retirement needs better than the default deal offered by a pension provider. One suggestion to make the most of the Open Market Option is to speak to an

independent financial adviser An independent financial advisers (IFA) is a professional who offers independent advice on financial matters to their clients and recommends suitable financial products from the ''whole of the market''. The term was developed to reflect a United ...

who will explain the different options available at retirement. The

Association of British Insurers The Association of British Insurers, or ABI, is a trade association made up of insurance companies in the United Kingdom. History The ABI began in 1985 after several specialised insurance industry trade associations joined to form one trade associ ...

has been working with the retirement industry to improve consumers' knowledge of the Open Market Option. This includes pensions providers making it much clearer to their customers that they can use the OMO and that they may get a better income by doing so. However, take up of the Open Market Option is still low and there are now calls from many to make it harder for a pension scheme to transfer into an annuity by default, thereby forcing people to consider their options.

References

{{reflist Pensions in the United Kingdom