Retirement Advantage warned new rules going live on 1 March, which will introduce quote comparison templates, carried "fundamental flaws" in the way the process works.
This was because quotes may be produced on a limited underwritten basis, or only provide standard annuity rates, which will not factor in health or lifestyle information, and therefore annuity comparisons on a like-for-like basis will also not include any medical details, it said.
The Financial Conduct Authority (FCA) is introducing new measures to encourage improved shopping around rates for customers looking to buy an annuity.
The quote comparison templates showing like-for-like rates will need to be included by providers and advisers when producing annuity illustrations.
However Andrew Tully, pensions technical director at Retirement Advantage, said: “These changes, although introduced with the best intent, will not improve the outcomes for thousands of people who continue to value the security of a guaranteed lifetime income from an annuity.
"Significant flaws remain where quotes produced on limited information will not highlight the true value of the annuity, and may well result in people locking into uncompetitive deals."
Comparison tables were introduced after the FCA found 80 per cent of people who purchased an annuity from their existing provider could have received a better deal by shopping around on the open market.
But Retirement Advantage calculated up to 70 per cent of people could qualify for a better income in retirement because of their health or lifestyle.
The firm estimated over the course of a 20-year retirement, the average annuity purchased will lose £8,460 of income simply because people did not receive the best deal.
The annuity market, though shrunk considerably since the pension freedoms, is expected to be worth about £4bn in 2017 with 40,000 customers looking to secure a lifetime income, according to Retirement Advantage.
When asked to address Retirement Advantage's criticism, a spokesman for the FCA said the issue had already been pointed out in its consultation on the measure.
But the watchdog's spokesman said the FCA had decided changing the tables would be a disproportionate cost burden on firms as it meant all firms would need to have the same underwriting standards.
The FCA said: "We recognise there is a risk that requiring comparisons on a like-for-like basis could lead firms to reduce the level of underwriting they provide to consumers.
"This would have the effect of reducing the differential between internal and open market quotes.
"However, we do not see a case for mandating minimum underwriting standards for firms. We consider that requiring the use of minimum underwriting standards would impose a disproportionate cost burden on firms and inappropriately intervene in their pricing models."
The FCA added it was looking at the issue of creating better consumer awareness of enhanced annuities as part of its retirement outcomes review, which stated: "We will explore whether to introduce an obligation on providers to inform consumers of their eligibility to purchase an enhanced annuity earlier in the process and to warn consumers of the implications on their retirement income of not taking this option."
Ricky Chan, director at IFS Wealth & Pensions, agreed the comparison tools were not perfect and said there should be caveats about this included in the tables as well as further signposting to guidance and advice.
But he said: "On balance, given the scale of inaction to shop around by consumers, the FCA is right to try to address this.
"At the very least, the comparison table should prompt the consumer to investigate further and shop around. This should hopefully then lead to them exploring enhanced life annuities to factor in their health and lifestyle.
"Even if they don’t, I guess the thinking is that at least they would have secured a higher standard annuity."
carmen.reichman@ft.com
