AN overhaul of the multi-billion pensions market has been demanded after a report found customers were missing on better retirement deals by not shopping around.

City watchdogs have launched a crackdown on policies which offer poor value returns after it emerged that potentially hundreds of thousands of people had been mis-sold annuities, which turn pension pots into regular income.

The Financial Conduct Authority (FCA) said competition had to improve, with a lengthy review finding evidence that sales practices were contributing to consumers not shopping around and switching.

It said insurers in the market now had to be subjected to more scrutiny to establish whether customers in poorer health got a worse deal, across the industry.

Some firms stand accused of failing to tell customers with lower life expectancies that other providers may offer annuities for medical conditions they do not underwrite. But the FCA's investigation stopped short of exposing historic mis-selling, which some had expected.

One of the UK's largest trade claimed the FCA report showed that large chunks of the industry "continues to let workers and pensioners down in their retirement saving".

The GMB also said it highlighted the need for "a financial services industry that that has a primarily aim of servicing people and rather than putting profit of market participants as its main goal".

Until March, when the UK Government announced new pension freedoms, annuities were bought by most people who retired.

The FCA said the Budget reforms, which offer more flexibility over what people can do with their savings, made it vital that consumers were supported in their decisions.

Christopher Woolard, director of policy, risk and research at the FCA, said: "We want to see firms improving the way they communicate with their customers. In order for the pension reforms to work and for people to have trust and confidence in the products they are buying, firms need to act now.

"The Budget reforms are a game changer for the retirement income market. People will be given more choice and many will want some support to ensure they make the right decisions for them."

The probe into the industry began in early 2013 following complaints from consumer groups about the poor value of the annuities and claims insurers were profiteering from customers who did not shop around.

At the time, most of the 400,000 or so consumers who bought annuities each year did not shop around but bought their pension from their existing provider.

The market was valued at £14billion in 2012, with some of the major pension companies Aviva, Standard Life, Scottish Widows and Aegon based in Scotland.

But the numbers are falling fast now that pensioners will no longer be forced into buying one from April 2015.

An array of annuity types exist, including standard ones that most people tend to get and enhanced annuities, where people in ill health, such as smokers, can get higher payments.

Richard Lloyd, Which? executive director, welcomed the findings of the review. He said: "Consumers have been repeatedly let down by the pensions industry, with years wiped off people's hard-earned savings, so it's welcome to see the FCA working with the industry to clean up mistakes from the past," he said.

"Action is long overdue and the regulator and industry must now quickly put in place changes to ensure retirement products offer true value for money."