When you come to take your pension income, under current rules you can take part of your accumulated pension fund as a tax free cash sum (this must be taken before the age of 75), with the balance of the fund being used to provide you with an income, traditionally in the form an annuity. However, you are not obliged to take your annuity with the company with whom you have built up your pension funds and most personal pensions will allow you to use your accumulated pot of money to purchase your annuity with any company on the market offering more competitive annuity rates. This is known as exercising your “open market option”.
Exercising your open market option in this way will potentially allow you to increase your income in retirement by accessing more competitive annuity rates, including rates offered for impaired lives. For more information see our Guide to Annuities.