Annuity vs Drawdown: How Should You Take Your Pension?
Once you reach your pot, the big decision is how to turn it into income. An annuity swaps your money for a guaranteed income for life. Drawdown keeps the pot invested and lets you take what you want, when you want. One buys certainty, the other keeps options open, and despite how it is usually framed, you do not have to pick just one.
What an annuity gives you
You hand an insurer some or all of your pot and they pay you an income, usually for the rest of your life, however long that turns out to be. In July 2026 a healthy 65-year-old with £100,000 can buy a level single-life annuity paying roughly £7,000 to £7,900 a year, with the best quotes near the top of that range (source: published annuity rate tables, July 2026; rates change and yours will be personal to you).
The details matter. A level annuity never rises, so inflation eats it slowly; inflation-linked versions start much lower. Single-life stops when you die; joint-life keeps paying a partner. And if you have health conditions or smoke, say so: enhanced annuities pay more because the insurer expects to pay for fewer years.
What drawdown gives you
Flexi-access drawdown leaves your pot invested and you draw income from it directly. You keep control, your money can keep growing, and anything left when you die can pass to your beneficiaries. The trade-offs are real, though: markets can fall, and taking a fixed income from a falling pot does damage that is hard to repair. A common starting point is drawing around 4% a year, but there are no guarantees, and a long retirement or poor early returns can exhaust a pot.
| Annuity | Drawdown | |
|---|---|---|
| Income | Guaranteed for life | Flexible, not guaranteed |
| Investment risk | None (insurer's problem) | Yours |
| Inflation | Level income shrinks in real terms unless index-linked | Pot can grow, but no promise |
| Run-out risk | None | Possible |
| What's left when you die | Usually nothing (unless joint/guaranteed period) | Remaining pot passes on |
| Reversible? | No, it's permanent | Yes, can buy an annuity later |
The decision is one-way in one direction only
You can move from drawdown to an annuity at any point, and annuity rates generally improve as you age. You cannot unwind an annuity. That asymmetry is why many people start flexible and buy certainty later.
The mix-and-match approach
A common middle path: use part of the pot to buy an annuity that, together with the State Pension, covers your essential bills for life. Keep the rest in drawdown for flexibility, growth and inheritance. Your fixed costs are guaranteed whatever markets do, and the invested remainder handles the nice-to-haves. Both routes still come with 25% tax-free cash available, and income from either is taxable in the normal way.
Things that catch people out
- Taking the first annuity quote. Your own provider's offer is often beatable. Shopping around (the open market option) routinely pays 10% to 20% more for life.
- The MPAA. Taking taxable income from drawdown cuts your future annual allowance for pension contributions to £10,000, which matters if you are still working.
- Tax on big withdrawals. Drawing a large lump in one tax year can push you into a higher band. Spreading withdrawals across years is often worth thousands.
- Forgetting inflation. A level £7,500 a year feels fine at 65 and thin at 85. Whichever route you take, plan in real terms.
First, know what your pot could be
The annuity-or-drawdown question comes later. Our free calculator shows what your pot and income could look like at retirement.
Try the calculator →The short version
Annuities are the right tool for income you cannot afford to lose; drawdown is the right tool for flexibility and inheritance. Most good retirement plans use some of each, and the free Pension Wise service (part of MoneyHelper) offers guidance appointments for over-50s before you commit. For a decision this permanent, regulated advice earns its fee.
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This article is for general information only and does not constitute financial advice. Annuity rates shown are market examples from July 2026 and change constantly; your personal rate will differ. The value of investments in drawdown can go down as well as up. For advice tailored to you, speak to a financial adviser regulated by the Financial Conduct Authority (FCA), get free guidance from MoneyHelper, or book a free Pension Wise appointment if you are over 50.