Firms must inform consumers how much they could gain from shopping around and switching provider before they buy an annuity, under new rules which take effect today.

When someone receives an annuity quote, they must be given a comparison with the rest of the market.

The FCA has said its behavioural testing suggests the new rules will prompt people to shop around to ensure they are getting the best rate.

Nathan Long, senior pension analyst at Hargreaves Lansdown, said the changes were “much needed” and cited these stats:

• Only 45% of people who buy an annuity shop around for the best rates
• The average annuity purchase size is now around £60,000

Mr Long said: “Weighing up your options at retirement is absolutely crucial and this is especially the case when it comes to buying an annuity.

“Last year the FCA found 80% of people who purchased an annuity with their existing provider could have found a better deal on the open market, so anything that encourages shopping around is welcome.

“More than half of people opting for an annuity receive an improved income because of health or lifestyle, but the new rules are fairly flimsy on this point and are not offering the same level of prompt.

“It remains to be seen if these new measures create a frenzy of annuity activity, but with rates at a two year high their introduction is certainly timely.”

The changes were outlined by the FCA last year in paper PS17/12.