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01 March 2013 last updated
Open market option new code by ABI to explain pension annuities

Hundreds of thousands of people retiring and considering the open market option will be given more information about their retirement income from annuities with the Association of British Insurers new code.

At retirement individuals with pension funds receive a pack from their provider explaining the annuity they can purchase and very little emphasis has been placed on the open market option which means 55% of people retiring accept their providers offer.

The existing provider may actually offer the highest annuity rates, however, without shopping around people cannot know for certain if this is the case and the new code from the Association of British Insurers (ABI) will help to promote these benefits.

Pension funds can be used to buy annuities that offer a lifetime income in return for a lump sum that has been accumulated over time usually in a personal pension, stakeholder of company money purchase scheme.

Open market option new ABI code
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Types of annuities people can purchase

Until now providers were only required to send financial information about their own annuity offer six weeks before the retirement date and they would would leave the open market option notice to the last few pages, often on inferior paper giving the impression it was not significant to the pensioner.

The ABI will require greater emphasis on awareness requiring letters to be sent two years, six months and finally the current six weeks before the retirement date. There will also be a requirement to show the amount of income that could be offered from other options including people with medical conditions.

Apart from the standard annuities offered by the provider and available from the open market option, enhanced annuity rates are offered for lifestyle medical conditions such as high blood pressure, Cholesterol, are a smoker or are overweight up to 18% higher income than the highest standard rates.

If an individual suffers from more serious health conditions such as diabetes, heart conditions or cancer an impaired annuity can be considered offering incomes of 40% higher than the highest standard annuities.

The number of people retiring and buying a pension annuity has increased from 300,000 in 2005 with premiums of £8 billion to 400,000 today with premiums of £11 billion. Of this amount up to 40% may qualify for an enhanced or impaired annuity which means many people may be missing out on a much higher income at retirement.

Related internet links:
BBC - Pension options to be made clearer under ABI code
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