UK workers may get year-long opt-out period to change to better pension plans

Middle-aged workers in the UK will be able to  shop around for the best pension deal before they retire under radical plans aimed at stopping hundreds of thousands of pensioners getting ripped off by insurance firms every year.

According to Steve Webb, the pensions minister, the current system of self regulation had failed. He added, he would consider ''very seriously'' any recommendations for changing  the law to enforce more competition.

Under one option newly-retired workers would get a 12-month ''cooling off'' period in which they could change their mind if they found a better deal after signing up to a pension.

Among the more extreme proposals would be banning people from buying a pension from the company with which they had built up a lifetime of savings.

The development follows a report last week from the Financial Conduct Authority (FCA) which found that the pensions market was ''broken'', adding savers were being denied the best pension deals by failing to encourage them to shop around when they retired, which meant many were left trapped in poor value schemes until they died.

Webb told The Telegraph newspaper following the report, that he had already held informal discussions with pension firms about reforming the way the annuities market operated to ensure everyone looked around for the best deals.

Meanwhile, the FCA had launched a probe into annuities last year and said it revealed such a "disorderly market" that it would carry out a competition market study looking at sales of annuities by pension providers to their existing customers.

Annuities, a one-off purchase made by people when they retire, convert their pension savings  into a fixed annual income for the rest of their lives.

The regulator said it would look for signs that companies tried to hang on to customers by putting them off shopping around for a better deal.

If it came across examples of bad practice, it would ask firms to make immediate changes.

The FCA looked at around four-fifths of the 420,000 annuity sales that took place in 2012 and found that 60 per cent of people stayed with their current pension provider, but four out of five of them would have benefited from shopping around and switching.

The Association of British Insurers said, "We agree with the FCA that there is an issue about people with smaller pots of savings not having access to as many options as those with large pots.

"We fully support efforts to help people make the most of their savings so they have more chance of securing a decent retirement income."