Simon Read: How to live your retirement to the full

Picking the right annuity could mean the difference between scraping by and packing in as much adventure as possible

Money : Peter Foster in his garden at East Dean, Sussex (David McHugh )

When Peter Foster had a heart attack on his 49th birthday, he knew he had to make some serious changes to his lifestyle. He quit smoking – he’d had a 50-a-day habit – and decided to climb a volcano every year.

Now 67, two weeks ago he returned from his latest volcano climb in Iceland. His pledge has taken him all over the world from South America to the Far East.

With no children, he retired at 65 and wanted to continue to make the most of his life and, therefore his pension pot, most of which had been built up during 43 years at camera-maker Olympus.

Peter lives at East Dean, near Eastbourne on the south coast, with wife Sylvia, who is also retired from many years in a clerical role with the RAC.

He remains fit and active, and is a regular visitor to the gym as well as keeping busy doing voluntary work, driving a community bus and being involved with the local safety boat that helps in coastal emergencies.

“We are comfortable and enjoying what we have while we can,” he says. “When you retire, it is important to make sure you have a purpose and a place in the community. It is good to know that you are still needed.”

But it could have been so different if he had taken his pension company’s annuity. He knew he needed help in getting the best out of his pot, especially with his poor health record. It was a wise move. His financial adviser helped him pick an impaired annuity, which pays out around 15 per cent more than a standard one because of Peter’s health risks.

If he had simply taken the annuity supplied by his pension firm, he would have been considerably worse off in retirement, which would have curtailed his travelling and volcano climbing.

It is such stories as Peter’s that led the Financial Conduct Authority this week to slam pension companies. In a damning report, it accused pension providers of failing their customers and that most consumers were missing out on a higher income from their annuity because they did not shop around.

It has recommended that pension firms should be forced to tell customers how their quote compares with others on the market.

“We want the industry to play its part; we want to clean up how people are presented with their options,” Christopher Woolard, the FCA’s director of policy, risk and research, said.

Since the Government’s announcement of major pension reforms in the Budget, which gives retiring people much greater freedom with their pension pots from next April, there has been a massive decline in annuity sales. But that doesn’t mean they’re the wrong option for all.

Kevin Legrand, head of pensions policy at Buck Consultants at Xerox, said: “For many, the best option will be to secure a safe and predictable income stream in retirement; surveys consistently show that it is what individuals are aiming for.”

And that’s precisely what annuities offer, although payouts have been consistently low in recent times and suppliers accused of cutting returns to increase their own profits.

One solution is to introduce a clear divide between people saving into a pension during their working years and the drawing out of it during retirement, reckons Just Retirement.

“The bad practice that afflicts this market would disappear if there was a clean break so that providers of pensions had to compete to hold on to their own customers’ pension money,” said Stephen Lowe, director at the firm.

‘I got 15% extra pension’: Peter Foster, 67

I knew it was important to shop around for an annuity and not to accept the offers from my pension companies. I also had more than an inkling that my health history and the blood pressure pills I take every morning would make a difference so knew it was important to get professional advice.

The majority of my private pension pot was from working for camera company Olympus in London as a technician, repairing equipment, running the workshop and dealing with customers.

But I built up further small pensions in subsequent jobs, first working at Gatwick Airport for four years helping transport passengers, then in a supermarket closer to home which took me up to my retirement at 65.

My adviser from my days working at Olympus helped me consolidate my pensions – which totalled more than £100,000 – and find the best annuity deal. He helped me choose a joint-life annuity with Just Retirement which offered about 15 per cent more income than a standard annuity.

I definitely was not tempted to do it myself. An annuity is fixed for life – you only get one shot so need to make sure you get it right first time.