BRITAIN'S retirees are burning nearly £250m a year in lost pensions because they fail to buy the right annuity when the time arrives to pick up their gold watches.

Ill health brings little good news except when it comes to buying a pension. By opting for what is called an 'impaired life' or 'enhanced' annuity, you can boost retirement income by thousands. Unless covered by a final or average salary pension provided by an employer, most people have to buy an annuity at retirement. It's the contract that converts your pension lump sum into a regular income.

As with any insurance, it always makes sense to shop around before committing yourself, and not simply accepting the first quote your existing pension provider offers. This contract will dictate your standard of living for the next 20 or 30 years. Once bought, it can never be changed.

The gap between the best and worst rates can be 20% or more, and make a huge impact on your quality of life in later years according to the Pension Advisory Service - an independent, non-profit organisation providing information on pensions issues.

A 65-year-old man converting £100,000 into an annuity with the Prudential, for example, would enjoy an extra £2,590 income after 10 years than if he had chosen Standard Life, according to financial researcher Moneyfacts. However, those with impaired health can boost their pensions even further by opting for an impaired life annuity, offered by a limited number of specialist companies, as well as some of the biggest insurers.

Shopping around for one of these is not as straightforward as for an ordinary annuity, which can be bought over the telephone, online, direct from an annuity provider or via an independent adviser.

Nonetheless, smokers, or anyone with high blood pressure or cholesterol, or major conditions such as diabetes or heart condition are throwing money away if they fail to do their homework and find a good deal.

Norwich Union, Scottish Widows and the Prudential are the three big names that offer impaired life annuities and will deal direct with the public, so are worth a call.

Specialists in the field include GE Life, Just Retirement and Partnership Assurance, but they will not deal direct so you must go via a financial adviser.

Most people are shocked when they come to retirement and see how little their pension pot will buy. Moneyfacts' best buy annuity last week was Prudential.

For a £100,000 pension fund it would pay an annual pension at 65 of £6,150 for the rest of your life. If you wanted to build in some inflation-proofing, the sum falls sharply to £3,362, rising by a 5% each year. Similarly, adding a pension for a widow or widower comes with a hefty price tag.

Just Retirement says a 70-year-old man with the same pot would receive an annuity paying £8,340 a year if he went for a single policy, or £7,332 if he elected to include provision for his wife after his death.

So it's worth taking advantage of any factors which can help increase what can be squeezed out of the annuity. But while one in four of those looking for an annuity do suffer from health conditions, only one in 10 taking out a contract considers enquiring about an impaired product, according to the Association of British Insurers.

Smokers can boost their annuity by between 8% and 23%. However, a word of warning. Conscious that higher payouts might tempt some people to lie and falsely claim a 40-a-day habit, some insurers demand nicotine tests before agreeing to the impaired annuity. Just Retirement, a financial advice group specialising in planning for later life, says there are around 1,000 separate medical conditions that would qualify someone for an enhanced annuity. Bank of Scotland believes it is possible to increase retirement income by up to 39%.

Factors often not thought worth mentioning by those seeking an annuity quote, including high cholesterol, blood pressure, asthma, obesity and type two diabetes can also be used to raise retirement income.

Kirsty Turner, an annuity expert at independent financial adviser Origen, said: "Our fact find has specific questions in it that ask 'Have you ever suffered from a medical condition or illness?' We tell clients it could be used to their advantage, but tend to find that people take some persuading to talk about medical conditions.

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