Around half a million people retiring each year are being short-changed by up to £1bn from their total future pension income, because of the hugely unfair and opaque annuity system, according to the National Association of Pension Funds.

In a report published in conjunction with the Pensions Institute at Cass Business School, the NAPF also found evidence of 'sharp practice' and 'murky pricing' in the annuity market, which it said was putting consumers at a huge disadvantage.
And it warned that the £1bn loss could treble in size to £3bn over the next decade as the annuity market matures and as up to eight million people start being automatically enrolled into workplace pensions from 2012.
Around 20% of these losses are passed on to the public in the form of lost taxes and higher means-tested retirement benefits, the report noted.
The majority of private sector defined contribution scheme members choosing the 'default option for their annuity by sticking with their pension scheme provider. This failure to shop around for a better deal can wipe as much as 50% off a member's annual pension income, the report said.
Among the barriers towards getting a better deal identified in the report are:
With 80% of savers having a pot of less than £50,000 most annuity advisers will not make any profit from advising them. This means the 'open market option' is effectively shut;
Fewer than 20% of people have the financial know-how needed to pick the right annuity at the best price. The rest need some form of advice because they lack sufficient understanding of factors such as interest rates;
Those who do 'shop around', find it virtually impossible to find a specialist adviser who covers the whole market;
There is not enough support from employers or providers when savers make a decision about their annuities.
The report, partly based on interviews with companies that cover 80% of the annuity market, also discovered that annuity prices are 'heavily manipulated'
In particular, it identified a lack of transparency and understanding about how annuities are priced - especially for those with medical condition who could qualify for a much higher level of pension income.
Advisers also reported some insurers pushing rates downwards at certain pot sizes when they see a group of people approaching retirement. This is because they expect many to not look elsewhere for a better deal and to simply accept the insurer's first quote.
Joanne Segars, chief executive of the NAPF, said: 'The annuity market desperately needs to be straightened out if the UK is to pay for its old age.
'People are saving throughout their working lives only to end up short-changed by a toxic system. Every year a billion pounds that could have been paid out in pensions instead disappears down the plughole of a murky annuity market. Lower and middle income workers are especially vulnerable.'
She added: 'The way the market is priced and structured must become more transparent, and people need stronger support in picking the right annuity. The government and the industry must work harder to create a clearer, fairer system that delivers better value for money.'