Research by the IFP-sponsor firm of over 2,000 adults found 48 per cent did not know what an annuity was, rising to 55 per cent of women.

The figure was highest among the 35-44 year olds where 58 per cent were unclear of the term.

The definition used to describe an annuity by the firm was ‘a contract that provides an individual an income for the rest of their life using the proceeds of a pension scheme.’

Among people who did know what an annuity was, 24 per cent said they offered poor value for money and 32 per cent said they believed there were better options available.

John Lawson, head of pensions policy, said: “As life expectancy increases and the prospect of living longer in retirement becomes a reality for many, having a solid understanding of your financial options during these years is important.

“Annuities offer security and a reliable income throughout retirement years. Therefore knowing an annuity is, how it works and if it’s the right option is vitally important.”

He pointed out there were multiple issues to comprehend when choosing an annuity such as whether to choose RPI-linked or level annuities and if people did not understand the basics they would struggle to make these more complex decisions.