"Notice something a little different about YouTube videos? We've just launched a new version of the player with improved caption controls and a cleaner look. If you're looking for the annotations switch, just click the gear button - you'll find size and quality controls there too," informs YouTube.
The gear button was previously used for the quality dropdown. This change makes the player less cluttered and makes the video quality dropdown less visible. When YouTube removes it, fewer people will complain.
Now it's hard to tell if a video has annotations without clicking the settings button. Each of the settings require an extra click.
{ Thanks, Tolis and Sushubh. }