What is an Open Market Option?

A type of Secured Pension, an Open Market Option (OMO) is available to members of Money Purchase (Defined Contribution) schemes allowing them to transfer funds to an annuity provider from a different provider than that offered by their current scheme in order to obtain a better annuity rate.

Before the built up funds of the scheme can be transferred to the OMO provider, the member must take the tax free cash lump sum from the existing provider.

The Lifetime Annuity obtained from the OMO provider then pays out an income for the rest of the member’s life on retirement. There are currently three types of Lifetime annuities available with different options.

 

What are the OMO types of Lifetime Annuities?

The same rules of a Scheme pension applies to Lifetime annuities, therefore at the outset of taking income from any Lifetime annuity, the cash free tax component must have already been taken. This means an OMO cannot take a Purchase Life Annuity (where tax free cash is not taken).

Thereafter, one of the following types of Lifetime annuity can be taken:

  • Fixed Rate
  • Index-linked
  • Investment linked

 

What are the OMO Lifetime Annuity options?

The following Lifetime annuity options are available:

  • Enhanced Life
  • Impaired Life
  • Guarantee Periods
  • Capital Protection

 

Why should I consider an OMO Lifetime Annuity?

The advantages of Lifetime annuities are said to be similar to Scheme pensions provided by both Defined benefit and Money purchase arrangements which are as follows:-

  • Guaranteed level of income for life
  • Guaranteed Survivor’s pension
  • No inheritance tax implications

Nevertheless the disadvantages of a Scheme pension provided by a Defined benefit scheme are that none of the above benefits can be changed or varied. Additionally the common disadvantages of all Scheme pensions is that once benefits are taken the member will not be able to profit from the underlying funds investment growth and lump sum death benefits are at best limited and at worst not available.

Restricted to members of Scheme pensions provided by Money purchase arrangements there will be reasons specific to an individual’s personal circumstances to which options to consider are more appropriate than others.

These include issues relating to a members death benefit requirements, access to tax free cash and income in the short term balanced against the income requirements in the longer term that also need to be considered.

 

How can I take an OMO Lifetime Annuity?

The first and most important step after you have decided you may want to start taking benefits from an Open Market Option Lifetime annuity that provides the desired retirement income is to have a discussion with us to provide you with independent financial advice.

We then agree what the most suitable type of OMO Lifetime Annuity and options are for your particular circumstances at the acceptable level of risk you are prepared to take to match your needs as part of the pension planning process.

We then make an application on your behalf to commence pension benefits based on how much income required and the options and lump sum death benefits available from the annuity providing the retirement benefits including all other existing pension schemes or deferred schemes, and your personal tax situation.

 

Want to know more?

Talk to one of our qualified financial advisers on 01553 777600 or e-mail us at enquiries@ringassociates.co.uk

Also you may want to read the articles associated with Pensions and Retirement from the Financial Services Authority website at http://www.moneymadeclear.fsa.gov.uk/products/pensions/pensions.html and http://www.moneymadeclear.fsa.gov.uk/print.aspx?Page=/products/retirement/types/lifetime_annuities

Also you can download the free booklet ‘Just the facts about pensions’ from the same website at

http://www.moneymadeclear.fsa.gov.uk/pdfs/pensions.pdf

Additionally you can download the booklet ‘Just the facts about retiring soon’ at http://www.moneymadeclear.fsa.gov.uk/pdfs/retiring_soon.pdf

and also the booklet ‘Just the facts about your retirement options’ at

http://www.moneymadeclear.fsa.gov.uk/pdfs/retirement_options.pdf