Why the word effective? The fact is that it hasn't been compulsory to buy an annuity at age 75 since April 2006 but the rules for those continuing to drawdown a pension from their own pension pot have been so punitive that many have taken the annuity option even though annuities are currently considered by many to be poor value for money.

By way of illustration - up to age 75 an individual can take up to 120% of the Government Actuary Department Rate (the GAD rate) each year as pension and the amount taken only has to be reviewed every five years to make sure it is within the limits. Furthermore if the individual dies before age 75 any remaining funds can be paid out subject to a 35% tax charge.

After age 75 the maximum annuity is 90% of the GAD rate for a 75 year old no matter what the age of the individual and the pension has to be reviewed each year to make sure that it does not exceed the limit. On death it is compulsory to provide a dependents pension for any surviving spouse and any remaining funds on the second death are subject to any eye watering 82% tax charge unless they go to charity.

It's not surprising that many have opted for an annuity at age 75.

We are promised that the rules that effectively force individuals to buy annuities will disappear from 2011-12. In the meantime the age at which the punitive rules apply has been increased to 77 for anyone reaching age 75 on or after 22nd June 2010 by which time the new rules will be in place.

The moral of the story for anyone who reaches age 75 on or after 22 June 2010 is not to buy an annuity but to wait and see what the new rules are when they are introduced.

The mystery is why has government not been shouting from the rooftops about this major and welcome relaxation of the rules? Perhaps because they see it as a revenue raiser!!

At present the annuity providers are making windfall profits from those purchasing annuities and those who don't purchase annuities are leaving the remaining funds in their pension pot to charity rather than suffer the 82% effective tax rate if the funds go to family.

Perhaps Government has finally worked out that if people aren't effectively forced to buy an annuity and the tax rate on surplus funds is only 35% they may get 35% of something rather than 82% of nothing. But hey I am just an old cynic and why look a gift horse in the mouth.