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Clients need to take greater advantage of the open market option as their inertia is costing them thousands in retirement income, advisers have claimed.

The comments come as Ros Altmann, former government pensions adviser, warned that hundreds of thousands of people received a lower retirement income as a result of insufficient guidance on the open market option.

She said: “If people had shopped around they could have received an extra 15 per cent on top of their pension. People do not have to take their retirement income from the same company they have saved with yet this has not been made clear from providers.”

However Steve Hubball, director for Warwickshire-based Aspect Financial Consultants, said this was one of the areas of contention as it was very difficult to tackle when it also relied on consumers doing some work for themselves. He said: “The FSA did some work into this a while back and they made sure an insurance company wrote to individuals informing them of their right to choose an annuity from a range of providers.

“This is all an insurance company can do. You can take a horse to water but you cannot make it drink. However, if the take-up of the open market option remains low then maybe we should look at changing the wording on letters to ensure there is no misunderstanding.”

Mark Woods, partner for Somerset-based Watermark Financial Services, agreed with Mr Hubball and said client inertia was a major part of the problem. He said: “As an IFA, to look around the market is a two-minute job, yet few people seem to utilise this. The fact someone should consult an IFA is even if the information pack provided details about what to do when unlocking the funds, yet consumers just seem not to be that inspired.

“This makes things even more difficult really, as it is not the provider who needs to be educated but the average consumer in the street. This is something that the industry will have serious problems tackling as you cannot physically force someone to do something even if it is in their best interests.”

In 2002, the FSA, studied letters sent by 55 pension providers and found that 40 per cent of them failed to meet its rules with a significant number failing to explain that by shopping around for a pension income, people could be better off.