Business leaders in Sussex have expressed disappointment at the Government's refusal to make pensions more flexible by changing the annuity rules.

Low interest rates and falling stock market returns make annuities look poor value in comparison to rates on offer a few years ago.

Many employers are finding it too expensive to continue offering staff final salary pensions and are closing schemes in favour of defined-benefit pensions.

A consultation document on modernising annuities was expected to discuss changes to the rule that the whole of a pension fund must be used to buy an annuity by the age of 75.

Despite widespread calls for change in the rule, the document failed to hold out any hope this might happen.

Michael Evans, chairman of the Sussex branch of the Institute of Directors (IoD), said: "The Government needs to take a more creative approach on pension plans to make these funds a more attractive investment.

"By changing the rules, people can be encouraged to make the right decisions on pension savings, thereby avoiding being a burden on future taxpayers."

A survey of IoD members showed 34 per cent favoured removal of the age limit of 75, while another 28 per cent said restrictions on a pension fund should affect only enough to keep the pensioner off state benefits, allowing free use of the rest of the fund.

Mr Evans said instead of offering a relaxation of the annuities rule, the Government argued its retention was for pensioners' own good. But this was valid only for people who lived a long time.

Those who died within a few years of retirement gained no benefit and were unable to leave money to their heirs.

The influential Adam Smith Institute wants to see an end to the rules restricting how much of their income people can put into a pension fund.

It is urging the Government to let people join as many personal or company pension schemes as they want.

Consumers can now only pay into either a company or a personal pension.

The institute also wants to see an end to the controversial law forcing people to use a personal pension plan to buy an annuity before they are 75.

Unless laws were radically simplified, people could continue to be put off saving for their retirement. Changes to the tax system in 1997, under which dividends from shares invested by pension funds were taxed, has led to pensions having little advantage over ordinary savings accounts.