By Sarah Toyne BBC News Online's personal finance reporter

On Monday, in Work and Pensions questions in the House of Commons, annuities were once again on the agenda. Well, so to speak.

Over the last few years, the anti-annuity lobby has become increasingly vocal - and there is growing pressure for reform of the current rules.

The primary reason is that annuity rates, which set retirement income for an increasing number of people, have plummeted over the last 10 years.

If you have been saving hard for your retirement it is a very depressing prospect.

The annuities debate will have even wider ramifications in the future.

As companies cut back on final salary schemes and shift into money purchase schemes, more people will be forced to buy an annuity.

Big turn-off

The mere mention of the word annuities is probably one of the biggest turn-offs in the English language, but it should not be ignored.

Many people assume that their pension will automatically pay out when they retire.

But if you have been paying into a money purchase scheme (not a final salary scheme) you must buy one.

This is basically an insurance policy for the rest of your life.

You can buy it from your existing company or from another provider, although you will probably get a better rate from exercising the "open market option".

Criticisms

Inflexible Little room for investment growth Lack of freedom to choose retirement investments Harsh inheritance rules

Under current rules you are legally obliged to do so, although you have until 75 years of age to make the decision - and can take up to 25% tax-free cash beforehand.

There are also increasing a number of options - some more risky than others, to "drawdown" income.

Current debate

Over the last few years, annuities have attracted growing criticism.

A number of reports have been commissioned into reform of the market, with the government expecting to announce the conclusions of a review in June.

David Curry, a backbench Conservative MP, is trying to push an annuity's reform bill through parliament.

Large pension funds

As well as low annuity rates, the major criticism of current annuity rules is that people with large pension funds are being punished by harsh and out-dated inheritance rules.

Benefits

Guaranteed income for retirement Up to 25% tax-free lump sum Tax advantages of paying into pensions

In a time of high annuity rates, people with larger pots will welcome the inflexibility of annuities.

But since rates have plummeted, many feel they are being punished by this inflexibility.

Many feel they would be better managing their pension fund by themselves, without the constraints of an annuity.

Two-tier concerns

For the majority of people, the issue is not about inheritance or even annuities, but paltry retirement savings.

The average pension pot is worth just �25,000.

For these people, the issue of inheritance is less relevant.

They will need to use all their pension pot to fund their retirement income.

One danger of abolishing annuities is that not all people will be sufficiently financially literate to invest themselves.

Why are rates so low?

Annuity rates have halved over the last 10 years.

This means that someone with a pension pot of �100,000 10 years ago would have got about �16,000 a year, while now there income would be just �8,000 a year.

The problem is that for rates to increase, the government must start borrowing more money.

This is because annuity rates are related to government bonds - gilts - the most secure form of investment.

Why do they not invest in equities?

The way pension funds invest is allied to age and risk.

When people are younger, their pension fund money should be put into riskier investments, such as equities.

But, because most retired people need income and security from their investments, the company will invest in bonds or gilts.

Tom McPhail of Torquil Clark, a Wolverhampton-based independent financial adviser, believes that companies will become more innovative in the way they invest money.

"It is difficult to deliver good investment growth and security. I think we will see increasingly imaginative investments, as companies try and add a little more value.

"You could maybe use things like car parks, commercial property or corporate bonds instead of gilts."

How else do rates differ?

The rate of annuity you will get is not simply down to the wider economic climate, and investment cycles.

The rate you get is also dependent on a range of factors, from your age, life expectancy and your gender.

One criticism of the current system is that it penalises women.

For example, as women tend to live longer than men, the company paying the annuity expects to pay for women longer.

Therefore women receive a lower annuity rate than a man of the same age.

Annuities are inflexible?

While inflexibility is bad when rates are low, annuities do guarantee income and security.

The main benefit is that you will get a guaranteed income for the rest of your life, whether you live an extra five or 20 years.

People also now have the choice to buy an "indexed" annuity, which will ensure that your pension keeps up with inflation.

Message needed

One of the main criticisms of annuities, refers to pensions in general: they are complex.

Experts believe that one of the biggest challenges the government faces is to get the pensions message across simply and clearly.

They also believe that people should learn that although a pension should be the major investment vehicle for retirement, they should also invest elsewhere.

"People in their 20s and 30s are learning that you need to invest in Isas and property as well as pensions," says Mr McPhail.

But, perhaps the biggest and most immediate challenge for the government and industry is to devise solutions which meet the competing needs of rich and poor.

People with larger pension funds have increasing options about how to mitigate problems associated with annuities.

But, for people on low incomes it is hard to get that level of advice.