Confused, you bet

Looking at it simply I am sure I could invest this money safe in bank accounts and receive at least 5.5% interest and still retain the capital.

Of course you wont always get 5.5%. It will be subject to tax (and possible removing of age allowance) and your money will be going down in value in real terms.

Or buy a couple of flats and live on the rent.

Rental yields are low and the income is subject to income tax and any growth in capital value will be subject to capital gains tax on disposal.

I would be grateful for any advice as I seem to be going around in circles and
I am loathe to just hand over my hard earned money to an insurance company who looking at it would only give me around 6% and they get the capital.

You should invest it in a manner that is appropriate to your risk profile but at the same time sensible and logical. Cash deposits are low risk but not sensible as inflation would ravish them (giving the equivalant of a stockmarket crash in real terms every 5 years). Property; you missed the boat and the returns wouldnt match the risk.

A decent sector allocated portfolio built for income and your risk profile would suffice. It may not be the flash option but simple things usually work.

Where are the savings? Have you taken the 25% tax-free sum from any portion of any pension yet? The reason I'm asking is that ISA income is tax free and doesn't count towards age allowance reduction that happens at income between 20k and 25k, producing an effective tax rate of 33% in that range.

If you were planning to live on ISA money, it's worth considering taking the lump-sum from some pension and living on that instead of ISA. It's also worth trying to invest the maximum 7000 a year ISA allowance for both of you. This way you end up with a greater part of your income from the ISAs and not affecting age allowance.

You should evaluate a short annuity for living expenses since you have the capital and the annuity will have some tax breaks associated with it to help it pay more than just drawing on the cash. It may not be best but it's worth checking.

Income drawdown when retired is one way but your fund size can generate an income of over 17500 plus your other pension and for your wife 7500 (assuming a cautious 5% drawdown rate).

What you really need to do is find a good IFA with retirement planning qualification. If you can I suggest one who uses the New Model Adviser (NMA) income model because that one gives them an incentive to look to the long term instead of the short.

You're going to have enough income that tax efficiency will matter and you won't get sufficiently good guidance for your situation here, mostly because few people who will comment know enough about the tax shielding products, dunstonh and the other pros being exceptions.