Can you avoid the annuity trap? Find out here.

Building up a pension for your retirement takes many years and can involve short-term sacrifice in return for that longer-term peace of mind. Therefore, when you come to retire, you want to make the most of that pension fund and see it not only provide you with the best income possible but also keep on providing for the rest of your life.

Remember, however, thanks to medical improvements and lifestyle changes, that could be a very long time.

According to the Office of National Statistics, a man aged 65 is now expected to live another 19 years; a female another 22*. For a couple, the combined expectancy will be even longer - so you need to beware of simply taking the highest quote for a level annuity. Over time, you could be a lot worse off.

Although the spectre of deflation has recently raised its head, inflation remains a key consideration for annuity buyers. In the past 20 years, the Retail Price Index (RPI) has risen over 80% - with the effect that £100 in September 1989 is now worth only £54*. Inflation nudged above 5% in the autumn of 2008 following a sustained rise in food and oil prices. Although it also went into negative territory in the wake of the credit crunch, there are already signs it will reappear once the short term challenges which surfaced as a result of the recession have been dealt with.

Annuities do exist in the UK, however, that can help safeguard against any inflationary effects. Known as 'index-linked', their return follows the  RPI so that, as inflation rises, so does your income. Your income level may be lower initially but, over time, you can be confident its buying power will be maintained. This allows you to plan with confidence and protects you against any unforeseen inflation shocks.

For the more adventurous, an investment-linked annuity could be an option. This provides income based on the performance of a portfolio of shares, property and fixed interest securities. You take a risk as the assets can fall as well as rise (so in a difficult period, your income could also fall) and they are therefore not right for everyone - but every option is likely to be worth at least some consideration.

Always remember you have the freedom to shop around for the best annuity rate and this may not be with your current pension provider. Indeed, you could buy a whole mixture of annuities; you do not have to put all your money in just one place. However, once you have made the purchase, you cannot change your mind or cash it in so, whatever your circumstances, consult a financial adviser and make sure you get the best you can.

*Source of figures: Office of National Statistics, derived from latest cohort life expectancy and RPI figures available as at August 09