The Association of British Insurers has formally launched a new code of conduct to make it easier for retirees to make the right choices when they use their pension pot to buy an annuity.
The mandatory code, which will come into effect on Friday, requires the ABI's members to provide clear and timely information to help people approaching retirement to understand what their options are.
At least two years from retirement, insurers will encourage customers to consider their retirement options and between six months and six weeks from retirement they will send details explaining the various options. These include combining small pension pots and shopping around for the best annuity.
Customers should also receive more information on how they can access their retirement income, such as how lifestyle or medical conditions may mean they are eligible for an enhanced annuity.
Savers will be encouraged to shop around for the best deal, with insurers having to clearly highlight the benefits of this option, as well as offering sources of further advice. Insurers will no longer include annuity application forms in an attempt to reduce the chances of customers buying from their current pension provider without first shopping around.
Otto Thoresen, ABI director general, said: 'Increasing life expectancy means that many people will be receiving a pension for longer than they were paying a mortgage so the need to make the right decisions at retirement has never been more important.
'The timely, clear and relevant information provided under the code will significantly increase the number of people reaching retirement with the confidence to make the right pension decision.'
The code, which was originally announced in March 2012, was welcomed by Economic Secretary to the Treasury Sajid Javid. He said: 'Raising awareness of the crucial decisions people need to make about their retirement has benefits both for individuals and for the industry as a whole.'
The code is being considered by the Financial Services Authority as part of the 'thematic review' of the annuities market it launched last month. The City watchdog is exploring whether not shopping around for annuities is having a negative impact on consumers.
Darren Philp, director of policy at the National Association of Pension Funds, said the code 'should' reduce the risk of people not looking for a better deal on annuity but said more needed to be done.
'The ABI's work is welcome, and an important step forward, but we believe that there is further to go if we are to maximise the chances of people securing the best possible retirement income,' he explained.
'Many people approaching retirement will need more active help to get them shopping around for the best possible annuity deal. That could be through appointing an annuity advisor or broker to help them, and embedding that process as part of the pension scheme itself.'