Lord Oakeshott, the Lib Dem pensions spokesman, branded the annuities market a “rip-off”, telling parliament there was a need “to make it crystal clear to buyers and sellers of annuities that the full range of options must be made available, including enhanced annuities”.

Under Oakeshott’s proposed amendment to the pensions bill, firms would be forced to present a consent form to retirees, who would assert that they were “fully aware of the options available to provide best value annuities”.

The amendment was proposed after the Financial Services Authority criticised the industry last month. The FSA said annuity providers were failing to give proper advice to retirees about their options. It is thought one in four investors is receiving less that they are entitled to in retirement.

As revealed by The Sunday Times earlier this month, some members of company money purchase schemes are at risk of losing thousands of pounds in retirement each year.

Oakeshott told parliament: “More than 500,000 people retired in Britain last year and more than 400,000 bought annuities. They lost more than £1 billion in pensions altogether by not getting proper advice on their best-value annuity. That rip-off must stop.”

The amendment states that firms “must not sell an annuity unless the purchaser has signed a form of consent, to be prescribed and kept under review by the Financial Services Authority”.

Annuities providers would be made to point out the availability of “enhanced” annuities, which apply when a retiree is a smoker or has a history of illness, or if they live in an area where life expectancy is lower. They would also have to be be made aware of options for inflation protection and benefits for dependants after the purchaser’s death.

Last week, Norwich Union became the second major insurer to launch so-called post-code annuities, which are already offered by Legal & General. It is understood Norwich Union will pay as much as 2% more to those who live in areas deemed to have lower life expectancy.

Nigel Callaghan of Hargreaves Lansdown, an adviser, said: “With L&G and now NU playing the post-code annuity game, this will force the rest of the annuity market to offer individual pricing or there is a real risk they could be left with the wealthy and healthy who live forever.”

Norwich Union will also price according to whether the retiree smokes, and their marital status.