A City watchdog has announced plans to ensure people approaching retirement get a fair deal from their pension provider.

The Financial Services Authority (FSA) is calling on investment firms to give consumers full information on the different options available to them on buying annuities, even if this leads to them going to a rival company.

Under current law, investors have to convert a personal pension into an annuity by the time they are 75.

Falling interest rates and increased life expectancy have led to a steep reduction in income from annuities in past years and people can significantly boost their retirement income by shopping around for the best rates.

The FSA is proposing new rules under which providers must tell policyholders at least four months before they are due to retire they can shop around and do not have to accept the annuity offered by the group with which they have held their pension.

David Severn, head of conduct of business policy at the FSA, said: "Our aim is to encourage competition by making sure consumers make decisions having received all relevant information.

"The decision to buy an annuity is one of the biggest financial decisions customers will take but few shop around for the best annuity rate for their circumstances.

"The measures we are proposing are aimed at ensuring consumers get a clear message about their right to exercise the open market option and buttress the welcome steps the industry has taken to inform consumers about the option."

Under the new proposals, providers must explain to policyholders that they may be able to get a better deal by shopping around and give them information on how to go about this.

Investors must be reminded of this option six weeks before they are due to make a decision and, if they are given a quote, before the four-month period running up to their retirement.

The Association of British Insurers (ABI) welcomed the FSA's proposals, which are similar to guidelines it recently published for its members.

Mary Francis, ABI's director general, said: "The ABI's statement of good practice on annuities, published last month, encourages customers to shop around.

For most policyholders, buying an annuity with the lump sum they have built up in a pension fund will be one of the most important investments they will ever make.

"The statement will make sure policyholders have the information they need to make an informed choice about their annuity.

"We welcome this consultation document from the FSA, which suggests extending this basic principle to all companies in the market."

Robert Guy, spokesman for the MarketPlace at Bradford and Bingley, said: "This is very positive news for consumers. consumers.

Greater life expectancy and falling annuity and stock market returns mean it's more important than ever for those people facing retirement to shop around and get the best deal."

Annuities can differ widely with some firms offering an annual amount of £785 for every £10,000 invested by a male aged 60.

A woman of the same age can expect slightly less.