Annuity vs drawdown: which is right for you?When you reach retirement age, you'll need to decide how to take income from your pension pot. The two main options are buying an annuity — which gives you a guaranteed income for life — or going into drawdown, which keeps your pot invested and you draw from it as needed. Both have significant advantages and disadvantages. Key decision: If certainty and simplicity matter most, an annuity suits you. If flexibility and leaving an inheritance are priorities, drawdown is worth exploring — with proper advice. What is an annuity?An annuity is an insurance product you purchase with some or all of your pension pot. In return, you receive a guaranteed income for the rest of your life (or a fixed term). Once purchased, the rate is fixed — it won't change if markets fall or rise. What is pension drawdown?Drawdown (also called income drawdown or flexi-access drawdown) leaves your pension invested. You withdraw money as and when you need it. The value of your pot rises and falls with investment markets. If you draw too much or markets fall, your pot can run out. Annuity vs drawdown: key comparison
What affects annuity rates?
What are current annuity rates?In April 2026, a healthy 65-year-old with a £100,000 pension pot can typically buy a single-life level annuity paying approximately £6,500–£7,200 per year. Rates have improved significantly since 2022 due to rising gilt yields. An enhanced annuity for someone with a qualifying health condition could pay 20–40% more. Can you do both?Yes — many retirees split their pension, using part to buy an annuity (covering essential income alongside state pension) and putting the remainder into drawdown for flexibility. This hybrid approach reduces longevity risk while preserving access to capital. Verdict No single right answer An annuity suits those who want certainty, have no other income, or worry about outliving their money. Drawdown suits those with other income, who want inheritance flexibility, or are comfortable managing investments. Most people should take regulated financial advice before deciding. Frequently asked questionsCan I convert drawdown back to an annuity? Yes. You can use some or all of a remaining drawdown pot to purchase an annuity at any time. This is common as people age and want more certainty. What happens to an annuity when you die? A standard single-life annuity stops on death. A joint-life annuity continues paying a portion (typically 50–67%) to a surviving spouse. A guaranteed period (e.g. 5 or 10 years) means payments continue to your estate even if you die early. Is pension drawdown risky? Yes, in that your pot can fall in value and you can run out of money if you withdraw too much or markets perform poorly. It requires ongoing management and ideally an annual review with a financial adviser. Do I need financial advice to buy an annuity? Regulated financial advice is recommended but not always legally required. However, if your pension pot is over £30,000, your provider must offer you guidance through Pension Wise — a free, impartial service from MoneyHelper. |
Annuity vs Drawdown: Which Is Better for Your Pension? 2026
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