The decision to buy an annuity is one of the biggest financial decisions customers will take but few shop around for the best annuity rate for their circumstances

David Severn of the FSA

The company must also spell-out to its customer that "they might get a better deal in retirement" from a competitor.

Pension companies now have until 31 October to respond to the proposals.

Annuity concern

Inland Revenue rules mean that anyone with a personal pension fund is forced to buy an annuity - a guaranteed income for life - with the bulk of their money, before they reach 75.

But pension companies have been criticised for making it difficult for people who want to buy an annuity from another company.

A survey by internet site Motley Fool revealed that 61% did not understand the importance of an annuity and less than 20% shopped around to find a better deal.

Getting a bad annuity deal could wipe up to 20% off your annual income.

Choosing the best annuity you can buy is even more important these days.

Poor stock market performance has slashed annuity rates in recent years - and some people are delaying retirement in the hope that rates will improve.

Current annuity rates are only about 7% or the equivalent of �7,000 annual income on a �100,000 pension pot.

There is an FSA booklet called "Guide to Annuities and Income Drawdown" (see link above right).

Firms' reluctance

Insurers, who manage the majority of pension schemes, have not been obliged to tell their customers that they have an 'open market' option.

As a consequence, many consumers are ignorant of the choice open to them, which could add thousands of pounds to their incomes each year.

The FSA's move follows on from a recent announcement by the Association of British Insurers (ABI).

The ABI has proposed that by January 2002, pension companies must make their customers aware that they can go to a competitor to buy an annuity.

The measure was announced as part of a 'Statement of Good Practice' from the Association of British Insurers (ABI) on Monday.