NEW YORK WHOLESALE

That message is: make sure every annuity provider you approach has full details of your medical condition and get a quote from every single provider that sells enhanced annuities (there are fewer than 10).

Ros Altmann, the director general of Saga, said: "These buyers are already ill, and they think they have done the right thing if they ask their pension company for an enhanced rate. But it turns out that they could be thousands of pounds a year worse off than they need have been."

The experience of Tony Ellis shows the importance of this advice. Mr Ellis, a 64-year-old retired businessman from Lancashire, has had a series of problems with his circulatory system, so with the help of his financial adviser he sought quotes for enhanced annuities from several companies.

He received six prices and the highest, on his £200,000 pension pot, was more than £3,000 a year more than the lowest. The best, from LV=, offered an annual income of £14,927, which is £3,175 or 27pc more than the £11,752 quoted by Canada Life. "I was astounded at the massive difference in rates," he said. "They were all based on exactly the same medical conditions."

But Stuart Bayliss, an annuity expert at Better Retirement Group, was not surprised. "Sadly, this is not unusual," he said. "I've seen differences of 15pc or 20pc between the top quote and the next best. With conventional annuities, on the other hand, you tend to get the top three quotes within 5pc of each other."

Shopping around the whole market can clearly make a huge difference to your income. But how you do it is also important, so it is worth describing the process in some detail. It involves quite a lot of effort, although your financial adviser will help.

If you have just minor ailments or "lifestyle" conditions such as smoking, you should qualify for what is called "enhanced annuity" and seek quotes from LV=, Just Retirement, MGM and Partnership, Mr Bayliss said. But people with more serious health problems, or more than one condition, need an "impaired life" policy and for these you need to go to eight companies.

"We can't predict which of these companies will offer the best rate in a given set of circumstances, so you have to try them all," he said.

But you don't have to do this alone – indeed you would find it very hard to do so. Instead, ask a financial adviser for a standard medical form (available at commonquotation.co.uk), which is accepted by all insurers. Fill it in as accurately and completely as possible; remember the more severe the conditions you disclose, the better the deal you get.

Mr Bayliss suggested getting a medical check-up before buying your annuity, as it could reveal something you didn't know about, which could mean a higher income. "Take the form home so you can check details such as hospital appointments at your leisure," Mr Bayliss said. "Fill it in with your spouse, who will often remember things you don't, and include his or her medical history – in equal detail – if the annuity will cover them too."

He explained why it was so important to take your time: "I've had customers come back with completed forms that make clear they are far more ill than they told me. This, of course, means that they will get a much higher income from their annuity than if I had filled in the form on their behalf on the spot."

So why do annuity quotes vary so widely for those in poor health? Mr Bayliss pointed out that, where serious conditions were concerned, quotations tended to be individually assessed, with complex cases going to the insurer's chief medical underwriter. It is very different from the conventional annuity sector, where insurers publish tables showing what you will get in advance.

Stephen Lowe of Just Retirement, a specialist annuity provider, said: "Most financial advisers have access to the whole of the market. But be sure to check – you could lose out on better deals if they are tied to a single or small number of providers."

The Association of British Insurers will next year bring in a code of conduct that requires its members to draw annuity buyers' attention to the benefits of shopping around.