Why savers are not on their own when it comes to buying an annuity
For baffling financial services jargon, the Open Market Option is right down there when it comes to well-meaning but difficult reading.
It’s a term you will come across if you’re serious about buying an annuity but for many, the OMO acronym sounds like “On My Own”. Which has become the experience for some when it comes to exploring the advantages of an annuity.
The Open Market Option is the requirement introduced by the Finance Act 1975 to give people the right to shop around for the best rate for an annuity, not just the one offered them by their pension provider.
At the time, it was a phrase born out of a change in regulation which gave people the option to compare what they were being offered with the chance to see what other companies would pay. The fact this had to be mandated at all is a tad concerning and, perhaps, goes some way to explaining how annuities had a tainted reputation.
After all, once you’ve bought one, there’s no going back. It’s an irreversible transaction which is why it is so vital to assess the quality of what you are being offered against an index which shows what the rest of the market thinks your pension is worth.
But even now, nearly 50 years on, not everyone automatically knows this kind of common sense contrasting is not only legitimate but positively encouraged.
To this end, we’ve developed Pension Potential to make it easier to do so. Forty seven years on from the OMO, we’ve made sure savers are not on their own when it comes to making an informed choice about buying an annuity.
Part of our reasoning is our commitment to making sure people don’t feel they are solely responsible for making important decisions. I’ve written before about the advice gap – the lack of help available to people in a more individualised age – and Pension Potential is, in part, formed by this continuing momentum.
We’re making it available to businesses because our experience in the employee benefits sector suggests people still look to their employer for support with decisions and those made for retirement tend to be significant.
Savers will be able to compare annuities from across the entire market, giving them a clear picture of the market.
And while there are different types of annuities, which we haven’t gone into for the purposes of this post, one area that’s consistent is the impact of the state of their health and how their lifestyle will affect how long they live. This can mean an annuity will pay out more.
We aim to make it clearer and more understandable for everyone and there are no restrictions based on how much is in their pension. It’s an online guided service to help as many as possible.
Pension Potential also creates a fully personalised report so the individual has time to digest the choices in front of them. There’s also the opportunity, in certain situations, to talk to an adviser about what lies ahead.
In a world where we’re rightly grateful for advances which give us more personal freedom and choice, the flipside has often been: which road do I go down? We believe Pension Potential provides the signposting and guidance to make more informed decisions.