A new communication strategy needs to be introduced in the pre-retirement stage in order to prevent retirees taking on a poor value annuity, says the Pensions Income Choice Association (PICA).

PICA has recommended a new three-stage communication process: to focus on the choices and decisions people face at retirement and the action they should take; to produce a personalised statement with sufficient information for people to use when obtaining quotations; and a short communication in which the employee would inform the company/trustees of how the fund should be applied.

"Given the increasing level of competition in the market it is critical that people review their options at retirement and have the opportunity to choose the right product and provider," said Tom McPhail, chairman of PICA and head of pensions research at Hargreaves Lansdown. "In 2008 just over a third of those taking an annuity exercised their right to purchase it on the open market.

"We believe that our recommendations would give hundreds of thousands of people over the next ten years a greater level of income in retirement. But we understand that further initiatives will need to be supported to make this a reality, such as making sure those with smaller pension pots have access to financial advice."

As part of the Optimising Value in Retirement report, launched today at the House of Lords, PICA is also recommending that a register of independent financial advisers (IFAs) who are willing to advise funds of less than £50,000 be formed, as well as initiatives to help IFAs deal with smaller funds through process improvements and flexible commission structures.

"We are determined, through our campaigning and lobbying kick-started today, to bring about actual change in the retirement income market, and importantly, to do so without financial implications to the Government or financial services businesses. The outcome would have a huge direct benefit to levels of income secured for retirement, and therefore retirees' spending power in the wider UK economy," added McPhail.

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