How to make the most of your annuity Loyal customers would have been most shocked of all to learn that, in many cases, the rates they were paid were a fraction of the terms their own "reputable" companies were offering new customers. In other words, they were being punished harshly for their loyalty. Last month, the Financial Service Authority (FSA) launched a high-profile investigation into the way annuities are sold and priced. This followed a recent complaint by the National Association of Pension Funds that 500,000 pensioners were being short-changed by £1bn a year. But it is now 11 years since the FSA first tried to encourage more people to shop around for an annuity. Although the ABI has taken steps to encourage insurers to promote what is termed "the open market option," more than half of all those retiring still accept the first annuity their pension provider offers them. But new rules introduced next week will make it harder for consumers to blindly take this default option. Companies will no longer be able to send out annuity application forms in the information packs they send customers at retirement, which means customers won't be able to simply tick a box for this default contract. Instead, customers have to actively approach their current insurer for a quote. If a policyholder does ask their existing provider about an annuity, the advantages of shopping around will have to be pointed out to them. Of course, some customers will still prefer to stick with what they know, but at least now the insurer has a duty to ask questions about their health to establish whether they qualify for an "enhanced" annuity, which pays a higher rate to reflect a shortened life expectancy. Finally and crucially, all insurance companies will be required to publish their annuity rates, so that the scandalously low terms paid by some companies to existing customers can no longer be done behind closed doors. Tom McPhail, head of pensions research at advisers Hargreaves Lansdown, said: "It is a big step in the right direction, but the system is still not perfect. There are gaps, and companies can still offer different customers different terms. This is causing concern among many experts. Dean Mirfin of Key Retirement Solutions said: "The FSA is looking very closely at this dual pricing, as this can penalise long-term savers. Our research shows that on average people can boost their pension by 21pc simply by shopping around, with many people doubling their money. Yet most people still don't do this. He added: "People believe they are with a reputable company who will do right by them. But everyone should do their research carefully before making what is a once-in-a-lifetime decision, and buying an annuity. It's hoped these new rules will close gaps between the rates offered to new and existing customers. However, full disclosure of annuity rates have been delayed until the summer. There are also concerns that this new code does not cover "trust-based" company pensions, so those who save in a workplace scheme may still not be encouraged to shop around when they come to buy an annuity. Mr McPhail said: "You may still have the situation where a pension manager gets a quote from his preferred insurer, and tells the employee, here's your pension. Trustees must wake up to their responsibility and ensure every employee receives good advice at the point of retirement. This includes making sure they pick the best annuity to meet their needs. As a prime example, Nest (National Employment Savings Trust), the government-backed workplace scheme, offers only a restricted annuity service, with just a handful of firms. Billy Burrows of Better Retirement Group worries that the code is dealing only with the tip of the iceberg when it comes to problems surrounding annuities. He believes tens of thousands of the 400,000 new annuitants each year end up with the wrong contract because of poor advice - or none at all. Case study Alison Kane boosted her pension by almost a third after using Nationwide's annuity service. After being made redundant by RBS she was looking for advice on investing her redundancy payout. Most of the banks I went into didn't even ask about what pensions I had. As this was an Aviva savings plan I assumed I had to take the pension they were offering. But Nationwide said it should be able to secure a better deal," she said. She said she was delighted to get a far bigger pension and said the process was very straightforward. "The hardest thing I had to do was sign my name on the relevant bits of paper," Ms Kane added. How to buy an annuity Always shop around Never accept the first quote your company offers. Most leading pension and annuity advisers, such as Key Retirement Solutions, Hargreaves Lansdown, Better Retirement, the Annuity Bureau and Annuity Direct, have useful tools on their websites. By the summer, the Pensions Income Choice Association plans to have a website that will serve as a central lobby for annuity providers and services. However, as this is one of the most important financial transactions you will make in your life, it may pay to get advice. Fees can sometimes be recovered if the adviser rebates his commission. Get your timing right Annuity rates are at an all-time low, thanks to rock-bottom interest rates and increasing life expectancy - and the added cost of regulation. Many hope they may rise when interest rates begin to climb again, but increased longevity is likely to continue to exert downward pressure on rates. But many prefer to delay because the older they are when they buy an annuity, the higher the rate. There is also more chance they will have suffered some health problems in the interim, which mean they may qualify for an enhanced rate. Billy Burrows of Better Retirement said: "If you are going to go on working even part-time and do not need the money, then don't buy annuities. Leave it a while and you will get more. But when calculating what is the best course of action don't forget to factor in the income you have lost over this period. This doesn't have to be an "all or nothing" decision. If your pension pot is large enough you can take some now as an annuity, while leaving the rest invested in the hope that rates may rise. Choose the right type It is important to understand what you are buying and get an appropriate contract. If you have a spouse then you may need to buy a "survivor's pension" to ensure they are not left destitute should you die first. Similarly, you may need to consider buying an inflation-linked pension, particularly if you have a long life expectancy. But these are very expensive and will reduce your starting income by as much as a third. As a rule of thumb, inflation-linked pensions become better value if you survive beyond your mid-eighties. Consider alternatives You can leave your money invested in a drawdown contract and take an income. Alternatively, you could withdraw the maximum tax-free cash and use a buy-to-let property to produce an income.