Do you remember a washing powder from the 1960s and 70s called Omo?
If the answer’s yes, then you might be approaching the age when it’s worth knowing what the term means in relation to your pension.
Your ‘Open Market Option’ or ‘OMO’ is your legal right to shop around if you decide to buy an annuity with your pension savings, when you come to retirement.
This ensures that your pension scheme provider cannot limit you to buying an annuity from them. It ensures you benefit from competition in the annuities market and, as they say, ‘keeps everybody honest’ in setting the rates on offer.
This can add thousands to the retirement income of a 65 year old man taking the carriage clock and hitting the flowerbeds this year, as his average longevity is currently 86, making his projected retirement, on average, 21 years. For a woman it’s even longer, with a projected longevity of 89, giving her a retirement of 24 years.
The annuity rate you get is only one aspect of using your OMO, however.
By working with an independent financial adviser, who is free to take a ‘whole of market’ approach and scour all options available, you may also qualify for one of the special types of annuity other than the standard annuity.
Many savers are surprised to learn that this is one area of financial services where less than perfect health can actually be an advantage, in financial terms.
Let me introduce you to the “enhanced annuity”. This type of annuity was initially available mainly to smokers, but has now been extended to include the overly obese and those with over 1,000 other health conditions and lifestyle issues. The enhanced annuity can, paradoxically some would say, get you a better retirement deal.
The actuaries who spend their day working out the likely lifespan of retiring people will look at you, as a smoker, and come to the cheery conclusion that you won’t last as long as a healthy non-smoker of your age.
They therefore give you a higher pension income now, to reflect the fact that you may not be drawing it for as long as your more healthy colleague.
The UK insurer MGM Advantage says that up to 70% of retirees could be eligible for an enhanced annuity, which can add between 10% and 20% to the monthly income you might have achieved with the standard annuity product.
Over your decade or decades of retirement, the difference can amount to a tidy sum, as you can see.
The pension companies, meanwhile, have been criticised in the past for not clueing their customers in on the existence and availability of enhanced annuities, which is why using your OMO to shop around and taking good advice can be so crucial to the lifestyle you deserve in your ‘golden years’.
If you have a serious health condition which looks as though it will severely curtail your lifespan, you could even be eligible for an “impaired annuity”, which would mean an even higher income again.
As you can see - shopping around for your packet of ‘OMO’ could be the best retirement decision you could make!
This article does not constitute financial advice. Brian Kennedy is a chartered independent financial adviser within Priory Financial Planning Ltd., and can be contacted on 028 9042 5025 or email@example.com. Priory Financial Planning Ltd is an Appointed Representative of TenetConnect Ltd which is authorised and regulated by the Financial Conduct Authority (FCA)