The retirement income market has evolved considerably over the past two decades and those approaching retirement now have far more choice about how they take their income.

The choices are expected to widen even further following the budget on March 19 for which the consultation period ended on June 11.

HM Revenue & Customs has also provided an update regarding the proposed changes to be implemented from April 2015 and are hopeful the response will be made before the Parliamentary recess on July 22.

The changes should then be incorporated into the Pensions Tax Bill in the autumn following a technical consultation on the draft legislation scheduled for August.

The number of people in the UK approaching and in retirement grows yearly as the UK population steadily ages as a result of the high birth rates between 1947 and 1971 and the improvement in life expectancy.

The average female now living until she is 94, this being reflected in current annuity rates and the relative poor value unless you were Frenchwoman Jeanne Calment who died in 1997 aged 122 years and 164 days old, the oldest living person recorded.

Having no heirs (she outlived her child and grandchildren) she did a deal with her lawyer then aged 47 when she was 90. The agreement was that he would pay her an income equivalent to 10 per cent of the value of her apartment for life, she was a smoker at the time and stopped at 117.

The lawyer obviously thought it was a great deal for him and his wife. The lawyer died in 1995 aged 77 and his wife continued to pay out until Mrs Clement passed away aged 122.

With people spending longer in retirement the need to make the best possible decision is crucial especially given that many of the options available result in an irrevocable decision.

Today’s retirees are far more active in the first five to ten years of retirement and this is a good thing. Whilst retirees are living longer, unfortunately a significant proportion of that time will be spent in poorer health than when they entered retirement. Individuals should consider plans that adapt to their change in lifestyle and income requirements.

In 2013 most people opted to buy an annuity. Based on new business statistics from the ABI (Association of British Insurers) 80 per cent of the retirement money went into conventional annuities, seven per cent into investment linked annuities and 13 per cent into drawdown.

In numbers terms, 353,270 pension annuities were sold including independent, restricted and non advised sales. The average annuity purchase price was £44,000 and this option remains high on the list from many individuals.

This is compared to 21,415 drawdown sales with a combined value of £1,691,216,000. Although the chancellor was banging the drum in the Budget back in March regarding no longer having to purchase an annuity, this had been the case from 1995 when the concept of drawdown was introduced!

For those purchasing an annuity the concept of being able to utilise the open market option facility that allows to accrue your pension fund with one provider but purchase your income with another provider has not been fully grasped.

A recent Financial Conduct Authority thematic review stated: “Overall 80 per cent of those purchasing an annuity from their existing provider would benefit from shipping around and switching. For standard annuitied we estimate 79 per cent could get a better deal on the open market and for enhanced annuities the proportion is 91 per cent.”

The benefits of the open market option is evidenced further on the basis that more people are qualifying for an enhanced annuity.

On average, during 2013, 57 per cent of clients from three leading annuity firms qualified for an enhanced income in retirement due to lifestyle or poor health. Annuities will remain the right choice for a number of individuals, however, the changes in pensions legislation in 2015 need to be considered.

* Trevor Law is a director with Merito Financial Services, chartered financial planners, based in Solihull. E-mail: tilaw@meritofs.com