However, to make the most of their pension pot, people need to be aware of a number of factors.

Mark Stopard, head of product development at Partnership, offers ten top tips for choosing an annuity:

1. Don’t forget to shop around – You do not have to take the annuity quote offered by your pension provider and you may well find that you can get a better deal by speaking to other insurers.

2. Consider using an adviser – While an adviser will charge fees, if you go to an annuity company directly there are still charges attached which could be as high but you don’t get the benefits of independent financial advice which include help finding the best deal.

3. Take into account medical or health conditions – If you smoke or have a health condition such as diabetes, high blood pressure or heart disease, you could be eligible for an enhanced annuity which could give you up to 25% more income from your pension pot.

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4. Don’t forget your partner – Two out of three married couples don’t take out a joint annuity which means that when the person who bought it passes away, the income ceases. This can be a very nasty shock if the surviving partner does not realise that a single life annuity was purchased.

5. Consider inflation – If you buy a level annuity while the income will be higher initially, it won’t track inflation so you will find that what your income buys falls as you age. You can protect yourself from this by choosing an escalating annuity which typically increases at 3% each year.

6. Combine your pots – Most people have a number of different pension pots so when you choose to annuitize it may pay to combine these pots as it will simplify the process and you will only have to pay one set of charges rather than many.

7. Remember guaranteed periods – If you decided to shop around and get quotes from a variety of companies, you need to be aware of how long each individual quote is guaranteed for. If you don’t you may find that the best deal for you has expired by the time you decide to take it.

8. Think about your cash lump sum – You can normally take 25% of your pension pot as a tax-free cash lump sum. However, if your combined pots are worth less than £18,000 or an individual pot is worth less than £2,000, they can usually be taken as lump sums.

9. Plan when to start your annuity – You can take your annuity from the age of 55 but the longer you leave it, the higher the income you will receive. However, if you only delay a couple of years, you may find that the increase is not matched by the income you’ve lost.

10. Don’t delay just because you think that annuity rates can only go up in the future – This may be the consensus view at the moment but it has been the consensus view over most of the last five years and rates have continued to fall. Trying to time the market is a risky and difficult strategy.