Compulsory Purchase Annuity / Open Market Option

tobiascurious

Am I right in thinking that these are alternatives? ie Compulsory Purchase Annuity means that you have to buy an annuity with the provider who holds your pension fund?

Is it still compulsory if you want to take income withdrawal? Thanks

tawl_2

the Open Market Option allows you to transfer your pension fund from one life assurance company to another to get a better higher annuity rate. You must exercise an Open Market Option before any benefits are drawn from your existing life assurance company in the form of an income or lump sum.

Although OMO has been around a while it is only since 2002 that companies have been obliged actually to point out to those approaching retirement that it is available to them. Your life assurance company will also tell you that you "might get a better deal in retirement" from a competitor. In other words you are actively being encouraged to shop around to get the best deal for yourself.

jamesd

A Compulsory Purchase Annuity is just the name used for an annuity purchased with a lump sum from a pension pot. There are other types of annuity available. The Open Market Option is a mandatory requirement of companies that hold your pension pot that requires them to allow you to buy a Compulsory Purchase Annuity from any annuity provider on the market.

It's not compulsory to purchase an annuity with a pension pot. You're entirely free to use income drawdown (stay invested, take an income from the investments) instead if you like, or to do a bit of each. It's possible that the pension provider you have now might not allow drawdown, in which case you'd have to transfer the money to a provider that does allow drawdown to do it.

yelf

tobiascurious wrote: »

Am I right in thinking that these are alternatives? ie Compulsory Purchase Annuity means that you have to buy an annuity with the provider who holds your pension fund?

Is it still compulsory if you want to take income withdrawal? Thanks

The OMO is the option to use the pension monies to purchase a Compulsary Purchase Annuity from another provider. This is done after the existing provider has paid the tax free cash (other wise you wqould be looking for an imeedaite vesting pension).

A compulsary purchase annuity is called such as you have to use pension benefits to provie an income (ie: it is compulsary).

It is possible to purchase a lifetime annuity. This can be bought from any lump sum you happen to have: you buy it from choice and not because you have to based on HMRC practice. - it is not compulsary.