PENSION savers could boost their retirement income by more than £20,000 by scouring the market for the best annuity, but just one out of three people are taking advantage, according to the latest research.

Since 2002 the regulator has insisted that insurers tell customers that they can buy an annuity from any firm. But latest figures show that only 34% of people are taking advantage of the so-called open-market option to get the best deal.

By failing to shop around the average saver could be missing out on retirement income of up to 15% a year, according to research by Hargreaves Lansdown, an adviser. A typical 65-year old with a £100,000 pension fund could be on average about £1,100 better off a year taking the best deal on the market. That’s more than £20,000 over an average lifespan.

Even when people want to shop around they can face obstacles. Industry guidelines state that an insurer should provide an open-market option annuity quote within 48 hours. But there are no guidelines for how long it takes your existing firm to provide a quote.

Advisers say some take up to 20 working days, making it difficult to compare deals.

The rules state that you should be able to exercise the open-market option whether you are in a personal plan or a company scheme. Even though money-purchase company schemes are supposed to offer this freedom to everyone, some don’t and simply go ahead and buy an annuity, seemingly breaking the rules.

Most people are tempted to pick the annuity paying the highest rate at the start. This is likely to be a standard single-life level annuity, but advisers warn that your spending power will be eroded by inflation.

To protect your income against rising prices, an escalating annuity will boost it by a fixed amount each year – typically 3% or 5% – or in line with inflation.

Smokers or people in poor health get enhanced rates as they are likely to die sooner.

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