Wayne Davies had a £27,000 pension with Royal London and was last year referred to the Pru for an annuity purchase as part of a tie-up between the two providers.
Royal London says information sent to the client before retirement highlighted the existence of enhanced annuities.
Although suffering from heart disease, polio and being a smoker, Davies was sold a standard annuity product.
During the cooling-off period following the purchase, Davies was diagnosed with cancer and notified Royal London. The email note was passed to the Pru but neither notified the client he could exit the annuity and could be eligible for an enhanced annuity.
Davies wrote to his MP Mark Menzies, who forwarded the complaint on to the Financial Ombudsman.
Davies eventually resorted to writing to pensions commentator Ros Altmann, who pursued the issue with the Pru.
The Pru has offered a settlement payment and says it has reviewed sales procedures, according to the FT. It was not available to comment further.
Altmann says: “The free at retirement ‘guidance guarantee’, which could help people understand their pension options, will not be in place until next April.
“In the meantime people with serious health problems will continue to lock into unsuitable annuities that mean they lose much of their pension fund. I am, therefore, calling on all pension providers and the FCA to address the shortcomings of this process immediately.”