When you retire, you may wish to buy an annuity, which will provide a guaranteed income across your retirement. You don’t have to select the quote given by your pension provider. The “Open Market Option” gives freedom to shop around and compare rates against the quote you received from your pension provider. This makes sense, as you may be able to find a better rate elsewhere. As you will most likely not be able to change your annuity provider, take the time to find the best deal.
The Open Market Option doesn’t necessarily mean the annuity offer from your pension provider is not the best deal. For example, if you have an older pension, you may be offered a Guaranteed Annuity Rate (GAR). The GAR was fixed when you took out your pension. As annuity rates have decreased in recent years, a GAR may be the best annuity rate available.
An alternative to purchasing an annuity is a flexi-access drawdown, which allows you to vary your income levels and keep some of your pension pot invested in the pension scheme. More on annuity vs drawdown in this blog.