Pensioners tricked into a lifetime of lower income Historically, male rates had been higher to account for a shorter life expectancy. So by equalising rates, the "Gender Directive" threatened to wipe nearly £700 off the income available on each £100,000 to men aged 65. Understandably, this threat unnerved many of those approaching retirement. The warnings came thick and fast as the December deadline approached - and the number of people buying annuities rocketed. Data obtained by Your Money shows that 214,620 people piled in during the six-month period leading up to December 21. One of Britain's biggest financial advisers, Hargreaves Lansdown, reported that sales of annuities to men had soared by 84pc in the three months to the end of September. Separate analysis has confirmed that this was an industry-wide trend, with sales of male annuities rising by a fifth between September and November, according to one firm. The rush petered out by January, with the number of people buying annuities falling by 15pc in the first half of 2013, according to unpublished figures. Financial advisers and brokers said this was because many savers brought forward their retirement to beat the gender ruling. Your Money has unearthed evidence that annuity providers cashed in on this boom. In fact, rates were slashed to record lows well before December - just as customers flooded through the doors. In June, a £100,000 pension pot bought an annual income of £5,321 for a 65-year-old man. By October - two months before the Gender Directive took effect - this average had fallen to £4,910, according to figures from Annuity Line, a broker. By December 1 rates had been cut to just £4,896. Then, despite the warnings of heavy falls, annuity rates crept up immediately after the implementation of the Gender Directive. By January 1 2013 - just a few working days after the new rules took effect - the payout on each £100,000 had improved to £4,902. Ros Altmann, a former government pensions adviser, said: "It was scaremongering of the worst kind. Many people were terrified into buying an annuity when it may have been the wrong option at the wrong time. There appears to have been little justification for such drastic cuts in the run-up to the new gender ruling. The only reasonable explanation would have been a significant increase in the cost to insurers of funding an annuity sale. However, the data suggests the cost of funding annuity payouts actually fell between July and December last year. Experts said this could indicate that insurance companies took advantage of the panic among savers to expand profit margins. Billy Burrows, a widely respected annuity expert with more than 20 years' industry experience, said: "Something went horribly wrong in the second half of 2012. If annuity rates are out of sync with their benchmark for costs - government bond returns - then insurance companies are likely to be making profit at the expense of customers. An awful lot of people locked into annuities right at the bottom of the cycle, when some insurers were saying 'buy now while stocks last'. In fact, insurance companies cut rates because there was too much demand. This is best demonstrated by the graph above. The orange bars show annuity rates tumbling between July and December. By contrast, the blue line shows the return on 15-year government bonds - called the "gilt yield" - inching up. Quite simply, the blue line is a proxy for the cost of funding an annuity. It is seen as a benchmark because when you buy an annuity, an insurance company invests in government bonds. Naturally, the return available dictates how much income can then be paid out to customers. Historically, annuity rates have risen and fallen in line with gilt yields. There is always a lag as insurance companies reprice their deals. However, the graph shows that this close link was broken in July 2012, just as companies started warning that rates would fall in December. During the following six months, the gilt yield barely moved as annuity rates tumbled. Ms Altmann said: "It was a vicious cycle for the customer last year, because when demand is high annuity companies drop rates. Annuities are regulated as a no-risk product but savers have little way of judging whether they are getting good value for money. Buying an annuity is irreversible. Should you live only a short time, you are left out of pocket. But live longer than expected and the guarantee kicks in to maintain your income. Investigations into the annuity market by the regulator will find that the length of time it takes to get value for money from an annuity has risen sharply. At the start of the Nineties, a £100,000 pension bought an annual income of £15,640 a year. That meant your capital was returned after just six years. By contrast, at the rate of £4,896 registered in December 2012, the original capital would not have been returned for more than 20 years. By that time, a pensioner would be nearly 86. Insurance companies claimed the falls in annuity rates were caused by soaring life expectancy, increased regulatory burdens and tumbling returns on government bonds. The Association of British Insurers insisted the directive pushed rates on offer to men down by 3pc, and pushed rates for women up by 10pc. A spokseman added: "It is wrong to say rates were cut heavily in the lead up to the introduction of gender ban. Standard rates offered by ABI members generally fell by around 5pc and in some cases increased. The trade body representative added: "It is misleading to say that gilt yields rose over this period. Fifteen year gilts were still at the June 2012 level in the December that the gender ban came in. Annuity rates are not solely dependent on gilt yields, as some annuity providers may invest in corporate bonds. And of course other factors, including the annuitant's age, health and lifestyle, as well as the type of annuity play an important part in setting annuity rates. Think outside the box The worst thing you can do is to rush into buying the first rate you are offered when you take your pension. In fact, you may be best off shunning annuities altogether - at least for the time being. The main alternative to annuities is something called "income drawdown." Here, you keep your pension invested in the stock market while you take an income. If you can prove that you have £20,000 of guaranteed annual pension income from other sources then you can withdraw as much as you like. This is called "flexible" drawdown. However, most people will see withdrawals subject to a cap. Currently, the amount a 65-year-old can take from a £100,000 pension pot each year is £7,320, according to pension provider LV=. The cap is set according to the returns on government bonds - its purpose is to stop savers emptying their savings pots too quickly and falling back on the state in old age. The cap is reviewed every month by the Government. However, savers can only change their income if they call a special income review with their adviser or drawdown provider. This can only be done once a year, on the anniversary of the last review. It must take place every three years by law - so your maximum withdrawals will rise or fall. However, you do not have to take the maximum. The big risk with income drawdown is a stock market crash undoing years of saving. Unlike an annuity, which automatically locks in your previous gains, you must make careful investment choices. So it's worth taking professional financial advice. You can always buy an annuity later, should rates improve or the lifetime guarantee appeals more strongly. Drawdown gives your pot a chance to keep growing - take 5pc as income and achieve 5pc growth and your capital will remain in tact. Any money left in a drawdown pot at death can be passed to your estate, subject to a 55pc tax charge. Get advice when choosing your annuity Savers with less than £50,000 are often best sticking to annuities, according to drawdown expert Alastair Black at Standard Life. This is because of the risk that your savings could deplete to such a critical level that it is difficult to recover lost ground. Each saver's circumstances will be different, though, and many with more than £50,000 will prefer the safety of an annuity. The rates on offer from different insurers vary by as much as 30pc. This means some firms will pay an extra £1,444 a year from a £100,000 pension pot, compared with rival companies. Last March the Association of British Insurers launched a "code of conduct" designed to help pension savers find the best deals. This includes giving clear information about the benefits of shopping around, and not issuing unsolicited quotes. However, the body is now investigating claims that its members are not operating in the spirit of these guidelines. Figures show 52pc of customers are still buying an annuity from their existing provider - exactly the same proportion as last year. Always speak to a financial adviser or, at the very least, an annuity broker before buying an annuity. This particularly applies to people with medical conditions, who qualify for special "enhanced" rates worth as much as double a standard deal. The more health details you can disclose, the higher the rate. However, if you have a very short life expectancy, it is unlikely that you will get back your entire capital, so it may be better to go into drawdown. Avoid annuity brokers that don't get quotes from the whole market. Some have partnerships with insurers that excluded the top rates from any search. Others only offer basic medical screening that fails to account for the severity of your health conditions. Also check whether your existing insurer offers "guaranteed" annuity rates with your existing policy.