I love the BBC. It provides free advertising for the work I do. Not a week goes by without some reference to people not setting aside enough to their pension. It’s a welcome reminder for all and it makes my job easier.

But less time is devoted to the complex area of how to take your accumulated pension pot. It’s a big decision to make on how to maximise or make best out of the pot you’ve got. It’s a critical, possibly one off decision that will affect the rest of your life in a big way, yet the decision has to be made when perhaps you are not feeling your sharpest.

Put simply, you can have an annuity, income drawdown or a scheme pension.

Each have their own attributes and can be tailored to an individuals needs. I’ve already covered impaired annuities here. Lets look at another interesting problem in annuities.

You can either have a level annuity or an escalating annuity, that’s one that goes up with say, inflation. For the last 10 years, inflation hasn’t been a problem. How about the last 20 years? The last 30 or 40 years? How about the next 10 or 20 years? OK, I suspect your thoughts on inflation are changing. Maybe they didn’t need changing.

However, just 6% of annuities taken out are escalating. That means 94% of annuities are vulnerable to inflation (source: Just Retirement).

The problem people face is that a 65 year old male with a pension pot of £100,000 could secure a level pension of £7,200 per annum starting from NOW. If the type of pension selected were to escalate with RPI, the starting income would be a seemingly meagre £4,500 per annum. At lower levels of inflation, it can take many, many years for an escalating pension to break even with a level pension but, should inflation suddenly hit 10% and stay there, it would only take 5 years for annual income to surpass the level pension and a further 5 years for cumulative income to be greater than cumulative income from a level pension.

Life’s questions still remain though. Live now or live later? Will I be alive later? The question deeper than this is can I afford to be alive later?

Suddenly the annuity game becomes a bet.

To hedge your bets however, depending on your situation, you could at the very least consider splitting your pension fund, securing a level annuity with half your fund and an escalating pension with the other. That way, the bets are off and you can grow old slower.