PF-money-microscop_2104204bEvery year millions of us use our pension pots to buy annuities, the contracts that provide an income in retirement.

But workers have been warned they risk being short-changed in old age by turning to familiar and trusted brands rather than shopping around.

Independent financial advisers generally obtain quotes from around 25 annuity providers across the market in an effort to provide customers with the highest payouts.

Getting the decision right is crucial because once an annuity is purchased the buyer is locked into the deal for life.

Last night it emerged many of the larger high street companies get their quotes from a smaller list – known as panels – rather than the entire market.

The result is that many are missing out on the best deals.

A Pensions expert told the Daily Express: “It’s easy to see why so many people are bamboozled by annuities and when that happens they either do nothing, or go for the higher rate. But that could be a mistake.

“It is very difficult to know if you are getting the right advice when looking to extract money from your pension.

“Few people realise familiar high street names use restricted panels and that’s shocking. They take commission on the products they sell, so they are not going to offer a view of the whole market. The best advice would be to sit down with an independent financial adviser who will go through all the relevant questions.”

Basement interest rates and inflation have eroded the value of savings across the board, while the Bank of England’s quantitative easing programme has been blamed for causing annuity rates to plummet by 20 per cent in a year.

The Money Advice Service, the Government’s free and independent financial affairs service, says £1billion in potential retirement income is thrown away every year because people fail to shop around for the best deals.

But even its comparison tables do not include quotes from the whole market.

The charity Age UK operates a limited panel, as does respected retirement brand Saga, which has ties with Legal & General to offer its own annuities.

Nationwide Building Society limits its customers to six companies while Openwork, a network of 1,800 advisers, has four annuity providers on its panel.

The Government’s workplace pension scheme, the National Employment Savings Trust, offers customers a choice of just five companies.

Research by the National Association of Pension Funds has shown 500,000 people retiring each year are being short-changed.

Anything that means an individual is likely to live a shorter life can push up the annuity. Suffering from high blood pressure, diabetes, smoking, being overweight and even living in a postcode with a high mortality rate may qualify individuals for a much better annuity.

The NAPF estimates that between 40 and 60 per cent of people are eligible for an enhanced rate but missed out because they did not shop around or failed to fill in a medical form properly

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