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When you contribute to a personal pension plan, you are building a fund which is used to buy an annuity on retirement; the same is true of many company pension schemes. In simple terms, you invest your capital to provide a lifetime income

As you approach retirement, your pension provider will tell you how much your pension pot is worth and how much income it will buy. The first thing to know is that you do not have to buy the annuity from the company from which you bought your pension plan and it is worth shopping around for the best deal.

Performance varies widely: there can be up to 25 per cent difference between the top and bottom annuity providers.

For the same purchase price, the income from a woman's annuity will be lower than a man's. This is not a case of deliberate sex discrimination, it is simply that women live longer - so the annuity has to stretch further.

Insurance companies that offer good rates for men may not be as competitive for women. So even if you and your partner have the same pension provider, you may do better buying annuities from different sources, says Peter Quinton, managing director of The Annuity Bureau, a specialist firm of independent financial advisers.

He illustrates the point using some major insurers. For a woman aged 60, purchasing an annuity for pounds 100,000, Norwich Union, pays out pounds 9,845 a year, while Commercial Union, pays just pounds 8,782. For a man aged 60, Generali offers pounds 10,686 a year, compared with pounds 9,781 from Commercial Union.

The most common type of pension is a level annuity, which provides a fixed income for life. Should inflation climb, the purchasing power will be eroded, so it may be worth considering one which is linked to the retail price index or which will increase at pre-determined rates.

The downside is that these annuities offer a much-reduced starting income for the same purchase price - typically 25-30 per cent lower for a man of 65. But if you have other savings or one partner is still working, this option may be good for you.

There are a variety of other schemes. Winterthur Life, for example, offers a pension portfolio plan which allows you to defer purchase of your annuity and vary your income from year to year. This means you can avoid being locked into a fixed income when annuity rates are low, and adjust payments to match your needs. For example, if you have a Tessa or other fixed-term investment maturing in one year, you could draw less then and more the following year.

Always do your homework before making decisions and, if in doubt, talk to an independent financial adviser.