The fall in the inflation rate is good news for anyone on a fixed income, such as pensioners, who have found soaring prices leaving them increasingly out of pocket each month.

While prices are, of course, still going up, the rate of increase is starting to slow and may even fall to the Bank of England’s target of 2%.

The fall in the inflation rate raises an interesting dilemma for anyone about to take a pension annuity. Do they opt for a level rate, which gives them a higher starting amount, or an escalating rate, which is hugely more expensive, but protects them against future price rises?

Most people take the level option, simply because their pension pot is so small that they can’t afford to do otherwise, particularly if they still have debts overhanging from when they were drawing a salary. Moving on to an index-linked pension straight after work would provide too steep a drop in income.

But what if you have an “adequate” income from your pension or other sources and simply want to try to game the system?

Tom McPhail, the revered head of pensions research at Hargreaves Lansdown, has come up with the following data.

“For a 65-year-old man, the rate for a level single life annuity with a five-year guarantee is £5,933. An inflation-linked annuity is £3,695. At 4.8% inflation [today’s RPI rate] it will take 20 years before the cumulative value of the RPI-linked annuity payments exceeds the cumulative value of the level annuity payments.”

In other words, you need to live for 20 years to break even in cash terms.

Then it starts to get interesting. Says McPhail: “The cohort life expectancy for a 65-year-old man in 2012 is 21.6 years. So in theory he would end up marginally in the money from the inflation linked annuity.”

So, if today’s 65-year-old lives as long as he’s officially expected to – or longer - he comes out ahead of the game if he takes an index-linked annuity. Of course, if he dies sooner he loses.

The figure assumes a steady rate of inflation of 4.8% RPI for 20 years. If inflation falls – as many expect it to do - and it averages 3% then our index-linked annuitant would have to live until age 96 to be “in the money” at today’s rates.

But what if inflation rises in the longer term? Might protection against inflation still be worthwhile? Almost certainly, if “running out of money” in old age is one of your fears – and this is a worry for many older people. Maybe better the hope of still having adequate jam tomorrow at the expense of some of your jam today.

The right annuity is not an easy or obvious choice, so not one to be taken lightly, and certainly not by ticking the box on the form sent to you by the life company you saved your pension pot with. The value of the services of an independent financial adviser can’t be overstated.