AT last! It is now possible to avoid the requirement to buy an annuity at the age of 75 with your pension fund.

Most modern pension arrangements use the fund built up through your working life to buy an annuity through an insurance company when you decide to retire.

Your pension capital is therefore converted to a lifetime income but the rate of income that you will receive will depend on annuity rates when you retire.

These are determined by interest rates and mortality rates.

Currently we are in a period of very low interest rates and when coupled with longer life expectancy tables, translates into very poor annuity rates. Rates available in the early nineties would have paid a pension income at double the rate of income available today.

Income drawdown was introduced in the mid-90s which allows you to take an income from your pension fund without buying the annuity and potentially allowing you to defer it until age 75 at which time you must buy an annuity.

This flexible arrangement would therefore ensure that most of your pension fund could be passed to your family if you died before age 75.

If you died after you had bought your annuity, the income would normally cease and all of the fund and its benefits would be lost. People who die at a young age subsidise those annuitants who live longer.

An ideal solution would do away with the need to buy an annuity at 75 in order to ensure that your pension fund is passed to your family.

This can now be achieved by using the Open Annuity recently launched from London & Colonial which has just received Inland Revenue approval.

This revolutionary and innovative plan allows your pension fund to remain invested beyond your 75th birthday whilst allowing you to draw an income which would roughly be in line with a conventional annuity.

The main difference is that on death, the remaining pension fund can be passed onto your family.

Your pension fund is segregated from other funds in its own "cell" therefore avoiding the need to cross-subsidise other pensioners.

The death benefits are achieved by purchasing a redeemable preference share for £1,000 in a specific insurance company and on death, this share has a value equal to the value of your pension fund and is passed to your beneficiaries.

Caution is needed as this complex scheme is not for everyone.

You must be able to accept a degree of risk as your pension fund remains exposed to the investment markets.

And if your pension income drops below 35 per cent of the initial income that you draw as a result of continuingly falling fund values, then you will be forced to buy a conventional annuity.

Consequently, the Open Annuity Plan is only available through specialist pensions advisers who are suitably qualified to understand and explain the intricacies of this much overdue alternative to a conventional annuity.

Nigel Bourke is from Nigel Bourke & Co, Stockton