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The way annuities are sold is costing hundreds of thousands of retirees as much as £1bn in future pension income, a report by the National Association of Pension Funds (NAPF) claims.
The NAPF said the problem lay with obstacles that stopped many people shopping around for the best deals.
It also said some insurance firms which sell annuities were guilty of "sharp practice and murky pricing".
"The process for choosing an annuity is a complex one and the majority still go for the "default" option by sticking with their pension scheme provider," the NAPF report said.
"This failure to shop around for a better deal can wipe 30% off their annual pension income, and in some cases up to 50%," it argued.
The NAPF said most people retired with pension pots worth less than £50,000, which was not enough for advisers to make a profit by advising on which annuity should be bought.
But it added few people knew enough to successfully chose an annuity themselves.
And those who were able to shop around may have found the best deals were simply not advertised.
"It is virtually impossible to find a specialist adviser who covers the whole market and who is willing to help those with smaller funds," the NAPF said.
Ken Davy, chairman of Simply Biz, said the lack of support for consumers accessing the OMO presents a more serious threat to them than the retail distribution review (RDR).
"Too many people who have saved diligently for their retirement have been short changed when it comes to their choice of annuity," he said.
"Often they simply tick the box on the form their pension provider sends them without any thought or guidance that they could almost certainly get a bigger annuity elsewhere.
"This cost to consumers is many times greater than the entire consumer detriment being addressed by the RDR."
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Tragic
I have been an adviser for 25 years and this is still not resolved. I am afraid that until the British Public take savings as seriously as the weather, TV and their holidays this will continue. It is a simple education or lack of education matter. As for advisers not wanting to deal with smaller pots. There are plenty who do but in the same way we have a witch hunt on executive bonus's, anyone wishing to take a fee or commission that represents the value of time, risk and reward required is also attacked. If we did sort this out how long before an FSA review into missellingx of annuities at OMO?
Posted by: Mark Stokes
So - why save in a 'pension' pot
I have recently been 'caught' by the low annuity return, and the proffering of the ARM bond facility that returned 10% on my SIPP. However, I would advise anyone not getting higher rate tax relief on payments into a pension to consider: With a pension fund you get tax relief now but it's not available as 'funds' if you are out of work - so you may get the advantage? of jobseekers allowance etc. A savings (or investment) account means you pay tax and will be considered to have money if you become unemployed. (unless you 'invest' it in your residence) and won't pay tax on it when you use it to live on. Also you don't pay 2% pa admin fees and 5% transfer fees during the life of your savings. Having re-calculated my pension pot, I could have managed to have about 90% of the capital sum that I had in the pension fund, if I had just 'managed' the money myself. With the added advantage of little tax to pay when I take the money to add to my government OAP, and being able to use some of the capital to repair my home. So - if you are not going to have over £100,000 in your pension pot - is it really worth bothering with a pension rather than just long-term (ISA'd ) savings/investments?
Posted by: James Button
A crisis out of a blip
In another report NAPF use the figure of 500,000 annuitants being deprived of £1bn. Okay, out with your calculators. This elates to £2,000 per pensioner. Assume each pensioner lives 20 years (65 to 85), that equate to £100 pa, before tax. For those who thirst before justice, it wouldn't even buy ½ a pint. Perhaps we can improve the system, but this does not add up to a headline blowing crisis. More likely it is a nice little project to keep some academic in a few bottles of wine.
Posted by: Glen McKeown
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Tragic
I have been an adviser for 25 years and this is still not resolved. I am afraid that until the British Public take savings as seriously as the weather, TV and their holidays this will continue. It is a simple education or lack of education matter. As for advisers not wanting to deal with smaller pots. There are plenty who do but in the same way we have a witch hunt on bonus's, anyone wishing to take a fee or commission that represents the value of time, risk and reward required is also attacked. If we did sort this out how long before an FSA review into misspelling of annuities at OMO?
Posted by: Mark Stokes