The Association of British Insurers is calling on the government to relax the rules on small pension pots worth less than £10,000.
Ahead of the Budget, which Chancellor George Osborne will deliver on March 19, the ABI said currently savers could only take their pot as cash if they have less than £2,000 in it. As such, the ABI is urging the government to give retirees more flexibility around how their money is accessed and for them not to be limited to having to buy a lifetime annuity.
Making this change would address a key concern of the Financial Conducts Authority’s recent industry-wide review of the annuity market - that savers with small pots had fewer choices when it came to shopping around at retirement - the ABI said.
ABI director general Otto Thoresen, said: 'If people have small pension pots, the issue isn't just about choice of annuity but whether they should annuitise at all.
'The industry is urging the government to simplify and relax the rules which state how much money people can take in cash when they come to retire with a small savings pot.'
Acting on the challenges set out by the FCA review, the ABI also today laid out new minimum standards which will commit pension providers to boosting the retirement income for those with smaller pots.
These include: a conversation for customers with their pension provider or an impartial adviser on an overview of alternatives to annuities; a comparison of annuity quotes for customers; and information to be provided by customers about their health and lifestyle to help them shop around for an enhanced rate.
Thoresen said: 'It is critical to make sure savers have all the appropriate information they need easily to hand to make the best possible choice at retirement.
'This means changing the retirement process so that shopping around and providing medical information is built into it.'
He also said providers will monitor data on the proportion of customers who take up the offer of a conversation or comparison and those that don't as well as how outcomes vary for these customers.
The ABI said it will implement its changes over the next 18 months with completion targeted for summer 2015.
'The new measures set out a minimum industry standard for savers and further build on the compulsory Retirement Choices Code and annuity window introduced last year by the ABI and its members,' Thoresen added.
The ABI was now working with its members to develop the detail of these changes, he said.