Pensions savers should be made aware of the OMO - and should also not face delays if they decide to use it, according to the FSA.
Over 60 percent of annuitants who switch provider when they fix their retirement income face delays, the financial regulator has claimed.
The Financial Services Authority (FSA) said today that pension firms must make it easier for people to make the switch when they buy an annuity, through cutting back on the delays and providing extra information to customers on their retirement rights.
Pension savers' right to have their annuity paid by a different firm to the one they saved their pension pot with is enshrined in the Open Market Option (OMO), a piece of legislation which providers have been obliged to publicise since 2002. However, the FSA has now suggested that this legal requirement is not currently being met by 40 percent of annuities firms.
Evidence shows that pensioners can boost their retirement incomes by up to £1,400 a year by using the OMO and shopping around for the best annuities deal.
Commenting, Jonathan French at the Association of British Insurers said: "We have long acknowledged that there is room for improvement on the open market option - for example, standards of customer communications are good in some cases, not so good in others.
"To address this, the ABI recently published new guidance for provider wake-up letters which will ensure customers get jargon-free information that clearly explains their options, and the potential benefit of shopping around."
The FSA investigated 55 annuities firms over the course of its research.
