In the current financial climate few people like the idea of investing savings in financial markets.

However, much better returns could be ahead in ten or twenty years time and a standard, level annuity pension fund may seem a less attractive option.

Those who are not due to retire for the next ten or twenty years and are not averse to a bit if risk could consider splitting their pension fund, thus reaping the benefits of security on the one hand and calculated risk on the other.

In ten years time the stock market is likely to be free of its current slump and performing far better for investors.

Peter Quinton, managing director of independent annuity specialist, The Annuity Bureau, explained, ‘Individuals who are buying standard annuities generating a fixed level of annuity income, a fixed escalating income, or an income escalating at RPI are essentially crystallising their losses.’

He went on, ‘although they may be playing safe, they will not benefit from a market recovery. Conversely, they will also not lose out if the market drops further.’

A little considered route for those with pensions worth £150,000 or more is to split the fund and buy an annuity with part of it, guaranteeing a steady income, while taking a risk with the other part and investing in an investment linked annuity that will benefit from any recovery in the stock market over the course retirement.

An investment fund allows retirees the freedom to change investments around during the course of their retirement and investors can hold part of their fund in cash for now, ready to invest in the market when they feel comfortable doing so.

At a later date they can also choose to withdraw from the equity fund and purchase a standard guaranteed annuity instead.

Mr Quinton suggested, ‘When you consider that a 65-year old male is likely to be in retirement for over 20 years and a female of the same age, for over 22 years, I feel it is a reasonable bet that the stock market will rise over this period.’

‘At least you are then giving yourself a chance of participating in a recovery. It is worth remembering that the current market falls have left the FTSE at around 3,500, but we must bear in mind that in 1990 it was only 2,500.’

The minimum amount of money needed to purchase an investment-linked annuity is at least £50,000 – after the tax-free cash has been deducted.

Those interested in opting for a split pension fund are advised to consult a financial adviser before making a final decision.