The “open market option”: it sounds like complex financial jargon. But  it’s certainly worth knowing about. For, when it comes to retirement, it could boost your income by almost 25,000 pounds.

A 65-year-old woman with 100,000 pounds-worth of pension savings could be missing out on a staggering 24,162 pounds by failing to exercise this right; a man by 23,025 pounds, according to numbers crunched by independent financial service provider Hargreaves Lansdown. That is around the same as average annual earnings in the UK last year — 23,764 pounds, according to the Office for National Statistics.

More than 85 percent of savers buy an annuity contract when they retire. This guarantees an income for life in exchange for savings built up in a pension fund. “That’s always been the case and is likely to remain the case, as for most people it really is the right thing to do: they need the certainty of income and haven’t got many other assets,” Nigel Callaghan, a pensions analyst at Hargreaves Lansdown, the largest annuity broker in the UK, tells Reuters.

Some 200-plus companies offer pensions. Yet only a small proportion — a dozen or so — “play” the annuity market. The average difference between the best and worst annuity rates published by the Financial Services Authority is more than 15 percent. Legal & General, Prudential, Axa, Friends Provident and Norwich Union are among those that vie to be competitive.

But did you know that savers need not buy their annuity from the company with which they’ve stashed their retirement savings? This — the “open market option” — became a contractual right in 2002, forcing insurers to send “wake up letters” to those approaching retirement to tell them of their ability to scour the market for the best deal. Despite that, the number of people exercising this right has remained largely static at around a third.

“Consumers are being ripped off right, left and centre when it comes to retirement,” says Callaghan. “Many, if not most, of these letters are the complete antithesis of plain English. Some are six-plus pages and you’ll find the stuff about the open market option embedded at the bottom of page four in small print and written in Latin. That’s why I think the take-up figure is so shockingly low. It’s not working: it wasn’t working back then and it’s not working now; commercial greed is the bottom line.”

If the current trend continues, insurers stand to make even greater sums: the number of pensioners is on course for a boom. Last year, 330,000 people bought annuity contracts with 12 billion pounds-worth of pension savings. By 2012, that figure is set to balloon to 18 billion pounds, as the baby boomer generation retires and the demise of final salary pension schemes continues.

By exercising the open market option, these people and the retirees that come before them can avoid handing insurers telephone-number profits. And, by all accounts, savers should be able to get a good deal: annuity rates are at a four-year high as the capital value of corporate bonds — used by insurers to back annuity contracts — plummets and yields stretch. “There have been 30 movements in annuity rates this year alone — the majority up,” says Callaghan. “It’s largely to do with the credit crisis and the continued spanking of corporate bonds. Annuities are one of the few beneficiaries of the credit crisis.” A beneficiary of the credit crunch? Well, I never.

Long life: it might be seen as a blessing, but increasing longevity poses one of the biggest risks to our financial wellbeing.

A person aged 55 today has a one in two chance of living to 90 and a one in four chance of living to 95, according to acturial consultancy Watson Wyatt. By 2010 the number of pensioners will, for the first time, exceed the number of children in the population, according to the Office for National Statistics, and by 2031 there will be 40,000 people aged 100 or over, compared to just 300 in 1951.

This creates a huge issue for retirement savings: there is an estimated 57 billion pound savings gap in the UK and the government has repeatedly warned that people must increasingly shoulder the responsibility of providing for their own retirement.

“The fact is that the UK’s population is growing older by the day: we are all, on average, living longer — and this has alarming consequences for both society and the individual,” says Mike Lake, chief executive of Help the Aged. “More than ever we need to be aware of the implications of living a long life, and a vital part of this is for people to consider their longevity hand-in-hand with their future finances.”

It is exactly this that a new independent, not-for-profit organisation aims to address. The Life Trust Foundation has been formed to act as a central voice and point of education and research into the financial implications of long life. Chaired by Lord Hunt of Wirral, president of the Chartered Insurance Institute, the organisation also boasts Lake, Fay Goddard, deputy director-general of the Association of Independent Financial Advisers, Anna Bradley, chief executive of the National Consumer Council, and Laurence Heyworth, founder and non-executive director of Life Trust Holdings, on its board.

During its first year, the foundation will work with the Institute of Ageing at Oxford University to analyse a wealth of existing information on longevity; bring together people from the worlds of academia, business and charity to debate the issues; and set up a consumer panel of people aged 60 to 85 to help gain and develop insights into the behaviour and attitudes of those in or nearing retirement. It wants to “understand the delicate relationship between money, lifestyle, relationships, health and happiness”.

It is, certainly, a tricky relationship — and one that few are addressing head-on. A fear of finances is creating a “pensions paralysis” among Britain’s over-40s, according to research by Norwich Union. Over a third of those in their 40s admit they have no financial plan for their retirement, and of those who do, the same proportion (37 percent), say they have no idea what their final settlement will be. A lack of understanding and “complicated” products are the biggest barriers to pension planning, the research shows.

The financial services industry has its part to play in helping people understand the options — and the amount of savings necessary for a retirement in which long life does not equal living on the breadline. And, indeed, the financial services industry is slowly responding to the challenges of longevity.

Earlier this year, Life Trust, a newly formed company, launched a new type of financial product, the longevity income plan. Unlike traditional annuities — whereby insurance companies keep any unused capital when a customer dies — Life Trust will redistribute investment fund growth accruing to funds previously held by deceased policyholders to those still alive.  These “birthday units”, coupled with investment returns, which are also calculated to increase each year, lead to a rising income as the policyholder ages.

But consumers, too, must wake up – living longer means a longer retirement. And that heralds a greater need to tackle retirement planning as early as possible.