Pensioners who do not exercise their open market option and shop around for an annuity before fixing the rate at which they will receive retirement income could be penalised by 31%.
According to new figures from the Association of British Insurers (ABI) the difference between the best and worst annuity rate on the current market is 31%, with Reliance Mutual offering the best rate and Scottish Widows offering the worst.
For someone with a pension pot of £180,000 this means the difference between receiving £11,000 a year and £8,400 a year. Over 25 years that would be an extra £65,000.
For those that qualify for an enhanced annuity - because their life expectancy is shortened by a habit such as smoking - the difference between the best and worst annuity is a staggering 46%.
The ABI report named Prudential as offering the top rate and Friends Life offering the lowest. Over a 25 year retirement this would equate to an extra £141,000.
Otto Thoresen, Director General of the ABI said that using a pension pot to purchase an annuity insures the saver against outliving their savings and the state against having to pick up the tab.
He conceded that there are complex assumptions involved when a provider turns a cash sum into an income for life, and the result is not a straightforward building society account that the saver can dip into at will, but he said, that is precisely the point.
"It is therefore absolutely crucial that people retiring are helped to exercise their right to a choice so they get the best deal and the right solution as it is a decision they will only get to make once," Thoreson concluded.
Laith Khalaf, of Hargreaves Lansdown reminded pension savers that annuities were not the only option for those approaching retirement.
"Pension savers should also recognise there are alternatives to annuities, such as drawdown, which they may wish to consider, particularly given annuity rates are currently so low. However this approach does carry investment risk and requires more active management," he said.