Pensioners are losing tens of thousands of pounds because of unnecessary annuity delays, according to The Pensions Advisory Service.

It is urging people who have suffered a financial loss because of delays in transferring funds between pension firms and annuity providers to seek compensation.

Complaints about pension providers have increased by 10% over the past year, according to the service. Delays in processing paperwork or paying benefits caused the most concern.

Malcolm McLean, its chief executive, said: “In the past, a delay in processing a pension may have been an advantage as annuity rates were increasing. Delays in today’s climate, however, can mean a substantial loss of income.”

Hargreaves Lansdown, the adviser, said annuity rates had fallen from last summer’s six-year high of 7.9% to about 7% today — a loss of £900 a year on a £100,000 pension pot. Over 20 years, this would amount to an £18,000 loss.

McLean said a delay of more than 30 days could justify a claim for compensation through the Pensions Ombudsman Service. Visit pensions- ombudsman.org.uk.

Reader John Smith, 61, a property developer from Londonderry, Northern Ireland, said he is £988 a year worse off because Equitable Life failed to transfer his pension pot to Aegon, his annuity provider, in time. By the time the money was transferred, 58 days later, his rate had fallen from the 6.47% he was originally offered to just 6.11%.

Smith has complained to the ombudsman. “It’s disgraceful. I have basically lost almost £1,000 a year,” he said.

Equitable Life said it acted as fast as it could after receiving all the correct paperwork.

The Association of British Insurers (ABI) launched an electronic transfer system at the end of December to speed up the process. It claims this has reduced transfer rates from 31 days to an average of eight.

However, Hargreaves Lansdown suggests the problem is getting worse, with the average time taken increasing from about 21 days in 2008 to 30 days today on the basis of its own figures.

Tom McPhail, its pensions expert, said: “Our experience is very different from the ABI and we deal with several thousand cases every year. The unit-trust industry routinely moves money within five days — insurers could do the same if they were made to.”

The fastest transfer rate recorded by Hargreaves Lansdown is by Lloyds TSB, which takes about 14 days. Standard Life takes 15 and Halifax about 16 days.

The worst offenders are Friends Provident (38 days); HSBC (57); and Windsor Life (99).

Annuity rates are generally linked to yields on gilts, or government debt. Rates have started to stabilise, although experts say it is difficult to judge which way they will go.

McPhail said: “If the government continues to buy gilts through its quantitative-easing programme, it will raise gilt prices and lower yields. Conversely, the government may issue more gilts to raise more money, in which case gilt prices will fall and yields will increase. It’s very difficult to call.”

Hargreaves Lansdown recommends using 20%-35% of your pension pot to buy an annuity today and then wait a year or two before committing the rest.

To get the best rate, always shop around. You don’t have to accept the rate offered by your pensions provider. The “open market” option can boost your annual income by as much as 40% according to Intune, a financial services provider owned by Age Concern and Help the Aged.

There are two main types of annuity. Level rate policies provide a higher rate to start with but payments stay the same for the rest of your life, so there is an inflation risk. The alternative is an increasing annuity that goes up over time, although you start with a lower rate.

Increasing annuities broadly fall into two categories. An escalating annuity increases by a set amount each year — usually 3%-5%. It would take 17 to 18 years before you got the same payout as someone who took out a level rate policy, according to Intune. After 20 years you would be better off.

The other increasing annuity is an index-linked policy based on the retail prices index. RPI now stands at -1.2%, though, so some providers may cut rates.

McPhail believes inflation will be the biggest threat in the next few years but suggests “mix and matching” with a third each in a level rate, an index linked and an escalating scheme.

Finally, you can “enhance” your annuity by declaring any medical problems or whether you are a smoker, when you are likely to get a better rate.

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