Pensions are a wide, sometimes complicated, and often misunderstood financial sector. But with some basic knowledge, those who are about to retire can do so in comfort and with peace of mind if they are able to select the right path for them. The transferring of a pension fund into a viable income is a challenge and one which people must get right if they are to live out the rest of their days how they would like to. The open market option is something which applies to anyone who is in the run up to their final magic date when they will get a well-earned rest.
This option was created by a piece of law called the Finance Act 1978. The rules say someone who wishes to go for the open market option must do so before they get anything from their current pension provider, i.e. they turn it into a regular income or take a lump sum.
In short, the open market option refers to the right of anyone approaching retirement to choose to turn their pension fund into an income with a company which is different to the one which has administered their funds during their employment. The open market referred to means the competitive wider range of companies who may be able to get you a better deal than the firm who administered your pension. Although they will offer you a deal, it may not be as good as another completely different company which may be able to supply you with a far better income.
Some people have wrongly thought in the past that sticking with whoever was in charge of their fund during their employment was always the best thing to do, possibly assuming that they automatically offer them the best deal available and that they are the most secure choice. These days, pension providers are obliged to say that customers may get the best possible annuity for them by looking around. This is according to rules set out by the Financial Services Authority. Pension providers also have to explain what the open market is and are also required to admit that there's no such thing as a perfect deal which suits every retiree.
Independent financial advice is widely recommended when it comes to seeking out an annuity. It is a decision which will affect to the rest of your life, as many types of annuity are inflexible and cannot be changed once you have signed on the dotted line.
Your current pension plan provider will contact you as the big day approaches advising you of your rights and should also notify you of the open mar option when they provide you with a deal. No one pension annuity is available to those choosing the open market option, as the types of annuity offered by your current provider may differ to those offered by other firms. There are a whole range of deals from annuities linked to investments, to enhanced or impaired annuities for those suffering from health problems. It is up to you, and it is indeed your right, to choose the provider and deal which you feel may suit you.
Steve Wright is Managing Director of YourPensionAnnuity.com an independent financial adviser specialising in retirement income advice and pension annuity
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