Open Market Option Annuity | The Free 20% Income Boost
The open market option annuity right has existed in UK law since 1975, and yet fewer than half of retirees actually use it. Here’s what that means in plain numbers: research consistently shows that shopping around adds 10% to 20% more income than simply accepting whatever your existing pension provider quotes you — on a £100,000 pot, that’s an extra £650 to £1,300 every single year, for the rest of your life. Over a 20-year retirement, that’s tens of thousands of pounds most people never claim, purely because nobody told them they didn’t have to.
Here’s exactly what the open market option is, why so few people use it, and the one situation where it genuinely isn’t the right move.
Site editor at MortgageToolsHub — open market option annuity figures cross-checked against FCA research and industry provider data. Last checked July 2026.
On This Page
- What the open market option annuity right actually is
- Why fewer than half of people use it
- Real numbers: what shopping around actually adds
- The one exception: when your own provider might already win
- How to actually exercise your open market option
- Pension Wise: the free guidance you’re entitled to
- What happens once you’ve bought
- FAQ
What the Open Market Option Annuity Right Actually Is
In the simplest possible terms: you are never required to buy your annuity from the company that’s been holding your pension. The open market option, introduced as part of the 1975 Finance Act, gives every UK pension saver the legal right to take their pension pot and buy an annuity from any provider on the market, not just the one their pot happens to currently sit with.
This matters enormously because your existing provider’s “default” annuity quote, the one that lands in the post as your pension approaches retirement age, is very rarely their most competitive offer — and it’s almost never the best rate available across the wider market. FCA rules specifically require pension firms to actively encourage shopping around at the point of annuitisation, precisely because the regulator has long recognised how much money gets quietly left on the table when people don’t.
Why Fewer Than Half of People Use It
This is genuinely one of the strangest gaps in UK retirement planning, and it’s worth understanding why it persists. Most people simply don’t realise the option exists — the letter from their pension provider often reads like a straightforward offer to accept, not an invitation to compare. Others assume, incorrectly, that switching providers is complicated, risky, or will delay their retirement income. In reality, exercising an open market option annuity purchase is a well-established, routine process that brokers and comparison services handle regularly, and it doesn’t require you to accept any additional risk — you’re still buying a fully regulated, guaranteed lifetime income product, just from whichever provider actually offers you the best terms.
Real Numbers: What Shopping Around Actually Adds
FCA research has repeatedly found that shopping around via the open market option increases annuity income by 10% to 20% on average, compared to simply accepting a pension provider’s default quote. The gap between the very best and worst rates on the market for an identical person and pot size can be as wide as 15% to 20%.
Put in real pounds: on a £100,000 pension pot, that 10-20% gap works out to an extra £650 to £1,300 a year, every year, for the rest of your life. On a larger £200,000 pot, the same percentage gap translates to roughly £2,000 to £3,000 a year — money that compounds into genuinely substantial sums over a 20 or 30-year retirement, all for the effort of comparing quotes before committing.
If you’re weighing up your own numbers, our annuity rates calculator models representative market rates by age, so you can see roughly what you should be aiming for before you start comparing live provider quotes.
The One Exception: When Your Own Provider Might Already Win
It’s worth being genuinely balanced here, because the open market option isn’t a blanket “always switch” rule. If you hold an older pension policy, particularly one taken out some years ago, it may include a Guaranteed Annuity Rate (GAR) — a contractual rate agreed when the policy was set up, sometimes considerably more generous than anything currently available on the open market, because it was priced under very different interest rate conditions decades ago.
If your policy includes a GAR, it’s genuinely worth checking that figure carefully before assuming shopping around automatically wins. In some cases, particularly with certain older pension schemes, the guaranteed rate embedded in the original contract beats every open market alternative by a meaningful margin. This is precisely the kind of detail worth confirming with your pension provider directly, or with an independent adviser, before making any final decision.
How to Actually Exercise Your Open Market Option
The process is more straightforward than most people expect. Gather quotes from multiple providers — this can be done directly, through a comparison service, or via a specialist annuity broker who searches the whole market on your behalf. Declare every health condition and lifestyle factor honestly at each provider, since this can materially change the rate you’re offered — our guide on enhanced annuities covers exactly what qualifies and by how much.
Compare not just the headline income figure, but the features attached to each quote: single life or joint life, level or escalating income, guarantee periods, and the financial strength of the provider itself. The highest number on the page isn’t automatically the right choice if it comes without protections that genuinely matter to your situation — our guide to annuity vs drawdown and level vs escalating annuities go into these trade-offs in more depth.
Pension Wise: The Free Guidance You’re Entitled To
Before purchasing an annuity, UK pension savers with a defined contribution pot are entitled to a free Pension Wise guidance session — a genuinely useful, impartial government service, lasting 45 to 60 minutes, available in person or by phone, that walks through your full range of retirement income options before you commit to anything. This isn’t personalised financial advice, but it’s a valuable, no-cost step that many people skip entirely, often without realising it’s available to them at no charge. You can book directly at pensionwise.gov.uk.
What Happens Once You’ve Bought
This is the part worth being genuinely careful about: once an annuity purchase completes, the decision is generally permanent. The income amount, the type, and the terms are fixed at the point of purchase and cannot be changed afterwards, regardless of how interest rates or your own circumstances change later. Some providers offer a 30-day cooling-off period immediately after purchase, but this isn’t universal across the market, so it’s worth confirming directly with your chosen provider before assuming you have a safety net to fall back on.
This permanence is precisely why exercising your open market option annuity right properly — comparing thoroughly, declaring health honestly, and understanding every feature before signing — matters so much more than it would for almost any other financial product you’ll buy in retirement.
A few things worth knowing:
- These income increase figures are based on published FCA research and industry averages — your own specific gain from shopping around will depend on your circumstances and the providers compared
- Guaranteed Annuity Rates on older policies can sometimes beat the open market, so always check for one before assuming you should switch providers
- A specialist annuity broker can search the whole market on your behalf, which is often worth considering given how permanent the eventual decision is
- Annuity rates change regularly, sometimes by around 1% in a single week, so quotes should be treated as time-sensitive rather than fixed
Get a realistic starting estimate for your own age and pot size before you begin comparing live provider quotes, using our annuity rates calculator, or explore pension annuity vs drawdown if you’re still deciding between a guaranteed income and keeping your pot invested.
Frequently Asked Questions
What is the open market option for an annuity?
The open market option is a UK legal right, dating from the 1975 Finance Act, allowing anyone with a defined contribution pension to buy their annuity from any provider on the market, rather than being required to accept the default offer from their existing pension company.
How much more income can I get by shopping around for an annuity?
FCA research shows shopping around via the open market option typically increases income by 10% to 20% compared to accepting a provider’s default quote, which on a £100,000 pot works out to roughly £650 to £1,300 extra a year, for life.
Is my existing pension provider ever the best choice for an annuity?
Sometimes, particularly if your policy includes a Guaranteed Annuity Rate (GAR) from an older pension contract, which can occasionally beat every open market alternative. Always check for a GAR before assuming you should automatically switch providers.
Do I have to pay to use the open market option?
No, exercising your open market option right doesn’t cost anything directly, though if you use a broker or adviser to search the market on your behalf, their fees or commission structure should be clarified upfront.
Can I change my annuity after I’ve bought it?
Generally, no. Once an annuity purchase completes, the terms are permanent. Some providers offer a 30-day cooling-off period immediately after purchase, but this isn’t universal, so confirm the specific terms with your provider before committing.
What is Pension Wise and is it free?
Pension Wise is a free, impartial UK government guidance service offering a 45 to 60 minute session covering your retirement income options, available before you purchase an annuity. It’s genuinely free and doesn’t require using any specific provider afterwards.
Official sources: book a free guidance session at Pension Wise, read FCA research on annuity shopping at MoneyHelper, and verify any broker or adviser on the FCA register. Compare your options starting with our annuity rates calculator, or browse every tool on the mortgage calculators homepage.