What Is the Open Market Option?
The Open Market Option (OMO) is your legal right to purchase an annuity from any insurance company, not just the one that currently holds your pension. When your pension provider sends you a retirement pack with their annuity quote, you are under no obligation to accept it. You can — and should — compare rates from every provider on the market before committing.
This right exists because annuity rates vary significantly between providers. The company that managed your pension during the accumulation phase may not offer the best annuity rate for the income phase. Different insurers use different mortality assumptions, have different cost structures, and specialise in different customer segments.
How Much Difference Does Shopping Around Make?
The gap between the best and worst annuity rates on the market can be substantial. Here is what typical variations look like for a 65-year-old buying a level single-life annuity in 2026.
| Pot Size | Lowest Market Rate | Highest Market Rate | Difference Per Year | Difference Over 20 Years |
|---|---|---|---|---|
| £50,000 | ~£2,950/yr | ~£3,500/yr | ~£550 | ~£11,000 |
| £100,000 | ~£5,900/yr | ~£7,000/yr | ~£1,100 | ~£22,000 |
| £200,000 | ~£11,800/yr | ~£14,000/yr | ~£2,200 | ~£44,000 |
| £500,000 | ~£29,500/yr | ~£36,000/yr | ~£6,500 | ~£130,000 |
Indicative figures showing the range across the UK annuity market. Individual quotes will vary. March 2026.
Step-by-Step: How to Use the Open Market Option
Using the OMO is straightforward. Follow these steps to ensure you get the best rate available.
Step 1: Receive Your Provider's Quote
Your pension provider will typically contact you a few months before your selected retirement date with a retirement pack containing their annuity quote. Note this rate but do not accept it yet. This is your benchmark to compare against.
Step 2: Gather Your Information
To get accurate quotes, you will need: your pension pot value, your date of birth, your partner's date of birth (if you want a joint-life annuity), your postcode, and details of any health conditions or medications. The more information you provide, the more accurate your quotes will be.
Step 3: Get Multiple Quotes
There are several ways to compare annuity rates:
- Annuity brokers: Specialist brokers search the whole market on your behalf and typically do not charge a fee (they receive commission from the annuity provider)
- Financial advisers: An independent financial adviser (IFA) can provide personalised advice on whether an annuity is right for you and compare rates. They may charge a fee
- Direct from providers: You can contact annuity providers directly, though this is time-consuming and you may miss specialist providers
- MoneyHelper: The government-backed MoneyHelper service provides free, impartial guidance on retirement options including annuity comparison
Step 4: Declare Health Conditions
Always declare every health condition and medication when getting quotes. An enhanced annuity can pay 10-40% more than standard rates, and the difference is often greater than the variation between standard rates from different providers. This single step could be the most valuable thing you do.
Step 5: Compare Like for Like
Make sure you compare quotes on the same basis — the same annuity type (level, escalating, etc.), the same survivor benefit, and the same guarantee period. A higher headline rate on a single-life annuity is not comparable to a lower rate on a joint-life annuity with escalation.
Step 6: Accept the Best Offer
Once you have identified the best rate, accept the offer and instruct your pension provider to transfer your funds to the chosen annuity provider. The transfer process is handled between the two companies and typically takes 2-4 weeks. There should be no charge for the transfer.
Why Rates Vary Between Providers
Annuity rates differ between providers for several reasons:
- Investment strategy: Insurers invest the premiums they receive differently, which affects the rates they can offer
- Mortality assumptions: Different companies use different assumptions about how long their customers will live, which directly affects the rate
- Business mix: Some providers want to attract more annuity business and may offer competitive rates to gain market share
- Operating costs: Lower-cost providers can pass savings on as higher rates
- Specialisation: Some providers specialise in enhanced annuities and may offer better rates for people with health conditions than generalist providers
Common Mistakes to Avoid
When using the Open Market Option, avoid these common pitfalls:
- Accepting your provider's first quote: This is the most expensive mistake. Always compare
- Not declaring health conditions: Failing to declare even minor conditions means missing out on potentially much higher enhanced rates
- Delaying too long: Annuity rates can change quickly. Once you have a good quote, do not wait indefinitely — rates quoted are typically valid for a limited period
- Ignoring smaller providers: Some of the best rates come from specialist or smaller providers that you may not have heard of
- Not checking for GARs: Before shopping around, check whether your pension includes a guaranteed annuity rate. If it does, the GAR may be better than anything on the open market
Combining Multiple Pension Pots
If you have several pension pots, you can combine them to purchase a single annuity from one provider. This has several advantages: it simplifies your income into one payment, and larger pots sometimes attract slightly better rates. However, before combining pots, check that none of them contain valuable benefits such as guaranteed annuity rates, guaranteed minimum pensions, or protected tax-free cash above 25%.
Open Market Option and Drawdown
The OMO applies to annuities, but the principle of shopping around extends to drawdown too. If you are considering drawdown instead of (or alongside) an annuity, compare drawdown providers on charges, investment options, and flexibility. A partial annuity strategy — using part of your pot for a best-rate annuity and the rest for drawdown — gives you the best of both worlds.
Next Steps
When you receive your pension provider's retirement pack, do not accept their annuity rate without comparing the market. Get quotes from at least five providers, declare all health conditions, and compare on a like-for-like basis. The few hours you spend shopping around could add thousands of pounds to your retirement income every year for the rest of your life. Consider using an annuity broker or financial adviser to ensure you access the whole market.