It is estimated that by shopping around for an annuity – using the Open Market Option – annuitants can receive up to 40 per cent extra for their pension pot, however 30 per cent don't even bother to look. Here, George Ladds, head of investment and pension research at Fair Investment Company, explains the importance of the Open Market Option (OMO):
"According to ABI research, only two thirds of annuity purchasers use the OMO when looking to buy an annuity. Four per cent don't shop around because they are not even aware of the OMO; of the remainder many are wrongly assuming reasons why it would not be worth their while.
"For example, the ABI found 23 per cent think as they only have a small amount to invest, it is not worth shopping around.
"In fact, it doesn't matter whether your pension pot is £5,000 or £1 million, you should always exercise your right to use the OMO; with our service you could get more than 30 per cent more for your pension pot whatever its value.
"For example, a customer had a pension fund of £5,823 to buy an annuity and was quoted £181 per annum from his pension provider – by shopping around he got £255 per annum, an increase of 41 per cent.
"And if you have impaired health or lifestyle issues, you could get even more – for example, a client who smoked 20 a day and had a pension fund of £13,992 was quoted £642 per annum from her pension provider, but by shopping around was able to get £760 per annum.
"Another common misconception is that getting annuity quotes is time consuming and complicated – according to the ABI 14 per cent didn't bother to shop around because they thought it would be too much hassle – but this is certainly not the case.
"One in three people said access to an online comparison tool would make them more likely to shop around - our online annuity rates comparison service is available to anyone and it is quick and easy to use. All you have to do is complete a simple form, someone from the annuity team will call you with verbal quotes which will then be confirmed by post and/or email, and there is no obligation.
"We are trying to dispel this myth that there is no point shopping around, and that it is a lengthy and complex process – it's not. In fact, there is no point in not shopping around – it costs nothing to look, but it could cost you dearly if you don't."
Shop around for an annuity with Fair Investment Company's annuity rates comparison service