Some of the figures that were quoted from the paper are wrong and as a result your calculations are out, may I explain;
The life expectancy for all males in our population is about 76 or 78 depending on which body is publishing the information. A man that has reached the age of 65 can however expect to live for a further 16.7 years (source pension board national pension review Oct 05 chapter 5.2) This is also expected to increase with medical advances in the coming years. IMO I would think that people that have pension benefits would also live longer than this average as they would be able to afford private medical insurance, nursing home care, would not suffer from fuel poverty etc etc. So based on this the figures that were quoted are way out and its just the media massaging the figures to sell a story!!!
Reasons that annuities are so low is that the life company must secure pension payments against AAA rated bonds which have always produced very low returns. Even at the moment when financial markets are extreamly turbulant German AAA rated bonds are only returning c. 2.9%. The next reason is that the life company has to administer the annuity for an average of 17 years, this would include posting out a monthly cheque, PAYE administration costs etc etc. Next reason is that there is a commision that would have to be paid to the advisor.
With regard to the pension dying with person, One of the life companies have a product called "Investment Protection" This has a lower annuity rate but it pays out the any remaining fund when the person die's e.g. Fund value of 100,000, person receives annuity payment of 4500 p.a. person die's after 10 years Total payments received 45,000 Life company pays remaining 55,000 to the persons estate. IMO this is the best option. This only became available to DC Occ members as a result of Finance Act 2011 as annuity is set up under ARF rules.
It a person only had 100,000 pension fund they would more than likely have to buy an AMRF which cannot be surrendered before age 75. They can however take any growth from the fund providing that they maintain the original investment amount.
So if you invested 100,000 in a AMRF fund in the best deposit account today, you would expect a return of about 4%, AMC would be about 1% so the most that you would be able to take out at age 65 would be about 3000. Now that's fine today when interest rates are at this level but remember only a short few years ago when you would be luckly to get maybe 0.75% p.a.
I do see your point and I do agree with you in certain cases, but in reality retired people require a guaranteed income and are quite happy to go down the annuity road. I have seen people going down the ARF road and have taken quite large % out of their funds in the first few years and are now living quite meagrely as a result, because their funds have been heavily depleted.