Annuities give pensioners a guaranteed income for life and now pay almost £2,200 a year more than just a couple of years ago, thanks to rising interest rates.

Rates could climb even higher, as today's inflation figure could force the Bank of England to hike interest rates three or four more times.

Many pensioners are still reluctant to buy annuities after years when they were seen as poor value and inflexible.

Returns collapsed after interest rates were slashed almost to zero following the financial crisis in March 2009.

At their low, a 65-year-old buying a single life level annuity with a £100,000 pension got just £4,723 a year. That's a dismal return for a lifetime of savings.

They got even less if they wanted it to rise each year with prices.

The obligation to buy a lifetime annuity was scrapped under 2015’s pension freedom reforms, to widespread relief.

Most over-55s now leave their pension invested via drawdown, to benefit from stock market growth while taking income as required.

Yet annuities look much better value today as a 65-year-old with £100,000 of pension could buy a level income of £6,920 a year, according to SharingPensions.co.uk.

That’s £2,197 a year more than before, a rise of almost 47 percent. Over a 20-year retirement that would add up to £43,940 in total.

Some couples take out a joint life annuity, where the surviving partner will continue to get 50 per cent income. Either way, children get nothing.

That's makes annuities less attractive at a time when many want to use their pension as a vehicle for passing on wealth to loved ones. Any unused pot can now be passed on free of inheritance tax, although beneficiaries may pay income tax if the policyholder dies after age 75.

Nick Flynn, retirement income director at Canada Life, said fixed-term plans offer a “third way" by giving purchasers the security of a fixed-income

READ MORE: Pensioners face ‘Age of Ruin’ as drawdown pots run dry years before they die

The good news is that rates on fixed-term annuities are improving, too. “They offer significantly better returns than before, with the certainty of guaranteed maturity values.”

Flynn said they also offer certainty at a time when volatile stock markets threaten the capital value of savings left in drawdown. “Fixed-term plans work well where people are not ready to lock into a lifetime annuity but want the security of a fixed income for an agreed period, after which they are free to choose another option.”

Fixed-term plans can also be used to provide a "bridge" for those who stop work early and need to generate extra income before they reach state pension age, he added.

They are not completely flexible. Once set up, plans cannot be changed for the duration of their fixed term, Flynn added.

Deciding between drawdown, an annuity and other retirement income options is complicated.

The decision comes down to personal circumstances, including factors such as health, life expectancy and what income sources you have, and whether you have beneficiaries.

It may be worth taking independent financial advice, otherwise speak to free government-funded guidance service Pension Wise.

A combination of drawdown, annuities and other savings may be the best option.