Say hello to our flexible friends

Mr White added that he would now only recommend conventional annuities for the very risk-averse and prefer to talk to clients about with-profit annuities or drawdown. He said: "As a male retiree of 65 can easily live for another 20 years, advisers should now take account of the rise in the stock market over such a long time, which is a good hedge against inflation."

Mr Foulkes added to this saying that conventional annuities will have to change in the future. He said: "As more players become involved in the flexible annuity market, some level of product change will have to take place across the board. The unattractive aspects of conventional annuities are often cited as a major reason why pensions are thought of so poorly and if the government is serious about encouraging people to make greater use of pensions as a retirement vehicle then further modifications to annuities will need to take place."

Does this mean that annuities will suffer a slow decline? Hardly. The flipside of the debate is that as life expectancy has increased so has the market for all retirement products, including annuities.

Watson Wyatt, a financial services consultancy firm, recently made the prediction that the UK at retirement market for financial products such as conventional annuities, will more than double within the next five years. The firm estimated that the at retirement market, which was worth £13.6bn in 2007, will grow by nearly 20 per cent a year over the next five years to £30bn. The projections come from a study of nine leading financial services companies active in the retirement planning and 'at retirement' markets, and are based in part on data from the FSA.

Statistics from Watson Wyatt and the Association of British Insurers also show that in 2005 annuity sales were £7.8bn and income drawdown sales were £1.5bn. In 2006, these figures rose to £9.5bn and £2.6bn respectively and £11bn and £3bn in 2007. By 2010, the annuity market alone is estimated to be standing at over £18bn.

Peter Quinton, business development director of Living Time, predicts that this growth in the annuity market will have two immediate implications. Firsts, that the pace of product development is likely to continue to accelerate and secondly, that we will start to see more political pressure for annuity reform.

Mr Foulkes sums the future of conventional annuities up when saying that it is unlikely that these products will just disappear because for a large number of individuals the relatively small size of their pension pot will often mean that the conventional annuity is their only viable retirement choice. He added: "The conventional annuity also has one major advantage: its relative simplicity and there will always be cases where the individual's needs are best met by a simple, basic product."

Maike Currie is deputy features editor of Financial Adviser