Failing to shop around for the best annuity could see retirees miss out on half of the retirement income that they might potentially be able to secure.
According to the latest research from MGM Advantage, the difference between the best enhanced annuity rate and the lowest standard annuity rate could result in 54% less retirement income.
However, with more than three quarters (78%) of over 55s not fully understanding what the open market option (OMO) is, and almost three quarters not fully understanding what an annuity is, it is easy to see why many will be missing out on valuable income.
The OMO allows someone approaching retirement to shop around before converting their pension pot into an annuity which pays a regular income throughout retirement, rather than simply taking the rate offered by their existing pension provider.
Through shopping around, people can also ensure that they get a product that best suits their needs and allows them to maximise their retirement income.
Indeed, according to the research, the lack of OMO awareness is potentially costing retirees as much as £10,000 over the course of an average retirement on a pension pot of £50,000.
Worryingly, it is thought that those who are in greatest need of additional income in retirement are less likely to be aware of the OMO and so will continue to miss out.
"There's no doubt that more must be done to raise awareness of annuities and the importance of exercising the OMO to shop around," said Craig Fazzini-Jones, executive director at MGM Advantage.
"By providing clear and simple educational messaging, the benefits of shopping around for an annuity are clear to see with those who qualify for an enhanced annuity benefiting from a considerable increase in income of over 50% throughout their retirement."
Qualifying conditions for an enhanced annuity include high blood pressure, high cholesterol, heart disease and diabetes, while higher payouts are also usually available to smokers as well.
Our new Retirement Planning service is the ideal starting point for anyone thinking about their life after work.
Quotes from different annuity providers, including enhanced annuities, can be compared right here.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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