Difference between the top enhanced annuity rate and bottom standard annuity rate could result in 54% less retirement income(1)
Almost a third (31%) of UK adults aged 55 and over have never heard of the Open Market Option
71% of over 55s do not fully understand what an annuity is
A new report (2) by the retirement income specialist, MGM Advantage, reveals that almost a third (31%) of over 55s have never heard of the Open Market Option ("OMO"), while seven in 10 (71%) do not fully understand what an annuity is. This lack of understanding is particularly worrying given the difference in retirement income between the top enhanced annuity rate and bottom standard annuity rate for those aged 65+ with a £50k pension pot, is 54% (1) according to analysis by MGM Advantage.
The OMO allows someone approaching retirement to shop around before converting their pension pot into an annuity and paying a regular income throughout retirement, rather than simply taking the rate offered by their existing pension provider. Through shopping around, people can also ensure that they get a product that best suits their needs and allows them to maximise their retirement income.
The MGM Advantage report reveals that more than three quarters (78%) of over 55s do not fully understand what the OMO is.
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How aware are you of OMO? |
Responses from people aged 55+ |
|
Very aware- I know exactly what it entails |
22% |
|
Quite aware- I have a vague idea of what it is but don't know all the details |
23% |
|
I've heard of it but don't know any details |
24% |
|
I've never heard of it |
31% |
Source: MGM Advantage (October 2011)
This lack of OMO awareness is potentially the difference between as much as £10,0003 over the course of an average retirement on a pension pot of £50,000. MGM Advantage believes that those who are in greatest need of additional income in retirement do not consult IFAs, are less likely to be aware of the OMO and so will continue to miss out on 54%1 more income through an enhanced annuity.
Craig Fazzini-Jones, Executive Director, MGM Advantage said: "There's no doubt that more must be done to raise awareness of annuities and the importance of exercising the OMO to shop around. 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 MGM Advantage report also revealed that seven in 10 (71%) over 55s do not fully understand what annuities are. A third (34%) were unfamiliar with "any details" and just 37% had a vague idea of what any annuity was. Women were the most unaware with 80% not fully understanding them, as were 85% of those aged 55-64 years old.
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