Annuity rates offered by different providers vary by as much as 46%, equivalent to over £14,000 on the income derived from an £18,000 pension pot, it has been revealed
The figures come from a new Association of British Insurers initiative to bring greater transparency to the annuity market by publishing the different rates offered by members based on 12 example customer profiles.
Called Annuity Windows, the scheme is part of the ABI's Retirement Choice Code, which was launched in March and aims to help people better understand their options as they prepare to stop working.
ABI director general Otto Thoresen said: 'Increasing life expectancy and an era of low interest rates makes the need to secure an adequate retirement income greater than ever.
'The industry is determined to do all it can to help people make the right decision to secure the best possible pension. The Retirement Choices Code will help people approaching retirement have the confidence to make the right pensions decision.'
Annuity Windows shows that there is a 31% difference between the best and worst conventional annuity rates available to a 65-year-old man in the Manchester area with £18,000 to spend. The best available is from Reliance Mutual, who offer £1,099.92 a year, and the lowest is £839.52 offered by Scottish Widows.
On enhanced annuity rates, the difference is even more stark, rising to 46%. A Manchester-based 65-year-old man who smokes and has lung disease could get an annuity of £1,778.23 from Prudential, but only £1,123.59 from Friends Life.
Commenting on the figures, Laith Khalaf, the head of corporate research at Hargreaves Lansdowne, said: 'The Annuity Window lifts the lid on just what rates insurance companies are providing. It is a positive step forward and is likely to lead to more pressure on those companies offering low annuity rates.
'It also illustrates how consumers can benefit from the simple step of shopping around at retirement. The keystone to improving pensioner incomes is encouraging more people to do this, which rests on improving the communications sent to pension members before they retire.'
Malcolm McLean, consultant at Barnett Waddingham, observed that data highlighted the 'poor value for money' currently offered by annuity providers.
He added: 'Of course, there are many other considerations to take into account other than price when choosing an annuity, notably timing and type of annuity - single life, one with spouses benefits, inflation protected and so on. The tables do not really help much if at all in that wider respect.
'Ensuring that people after often a life-time of scraping and saving secure an appropriate return for their efforts remains a challenge the pensions industry and government must address. Getting the consumer the right product at the right time from the right provider requires a major shift in attitudes and approach which as yet we are a long way off achieving.'
