A startling new report from retirement income specialists MGM Advantage has shown than 3 in 10 of the over 55′s have never heard of the Open Market Option, while 7 in 10 do not fully understand what an annuity is. While many inside the pension industry will be fully aware that a lack of understanding clearly exists by the mere fact that so many retirees fail to shop around for the best annuity offer, this is the first time this has been equated into raw figures. With annuity rates at record lows and personal pension funds dropping due to poor stock market performance, now more than ever is it vital that people use the Open Market Option to find the best annuity on offer. To illustrate just how important this is, MGM state that the difference between the top enhanced rate and bottom standard rate is 54% for a 65 year old man with a £50,000 pension pot.
Using OMO allows retirees to shop for not only the best deal on the market but also to get the right product, such as enhanced annuities. These pay a higher income compared with standard annuities. Although only around 10% of annuities purchased are enhanced, it is estimated that around two-thirds of annuitants are actually eligible.
Craig Fazzini-Jones from MGM Advantage says more needs to be done to raise awareness of OMO arguying that…”….it is grossly unfair that those who are most in need of additional income in retirement are unlikely to be able to afford the services of an IFA, or be aware of the benefit of shopping around for better annuity rates and higher income in retirement. By providing clear and simple educational messaging, the benefits of shopping around for an annuity are clear to see with those who qualify for an enhanced annuity benefiting from a considerable increase in income of over 50% throughout their retirement.”
The report also showed a lesser number (31%) of people questioned have only a ‘vague idea’ of what an annuity was. This underlines the need to provide better information and to educate people about what their options are. While most people understand the need to shop for other forms of insurance, annuities are still one of those products that people have very little understand of. This has the net result of people missing out on thousands of pounds worth of income each year as most retirees accept the first offer from their existing provider, unaware they could have got more income elsewhere.