Retiring workers could be forced to shop around for annuities amid warnings that they could lose more than half their income if they don’t get the best deal.

Under current rules, pension companies must alert retiring workers that they can shop around for an annuity – which is used to convert a pension pot into an annual income.

But it can be a time-consuming process, making it easier to use an annuity provided by the same financial group that helped to build up your pension pot.

The income provided by different annuities varies significantly and sticking with your existing pension provider may not secure you the best deal. It can mean missing out on an extra 60 per cent of your income in retirement.

Laith Khalaf, a pensions expert at Hargreaves Lansdown, said: “Pensioners could net themselves thousands of extra pounds simply by shopping around for an annuity. “Typically the difference between best and worst rates is around 20 per cent, but we have had clients tell us that the income we arranged for them was up to 60 per cent higher than what their pension provider had offered. That income is then paid year in year out for life.”

The Government is planning to overhaul the process of buying an annuity – known as the Open Market Option – and has given the pensions industry until the end of the week to explain why so few people are not accessing it.

Mr Khalaf added: “The current system encourages people to tick a box and send it back to their pension provider, thereby potentially locking into a lower income for the rest of their lives. The Government is now looking at ways to steer people towards shopping around because ultimately it is in their best interests to do so.”

Gemma Goodman, of annuity advisers The Annuity Bureau, said: “Thousands upon thousands of people live through their entire retirement on second rate pensions just because they do not shop around for pension annuities.”

By Myra Butterworth, Telegraph.co.uk

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