Quick Answer
An annuity turns £100,000 into a guaranteed income of roughly £7,370 a year at age 65, but when you die, the income usually dies with you. Drawdown keeps the pot invested: the same money can pay the same income and still be worth over £100,000 after 20 years, with no guarantee attached. This is the flexibility-versus-certainty trade-off, in numbers.
The choice in one paragraph
With an annuity you hand your pension pot to an insurer and receive a guaranteed income for life, around £7,370 a year per £100,000 at age 65 for a single-life, level annuity in 2026. With flexi-access drawdown you keep the money invested and draw from it yourself: same money, similar income, no guarantee, but flexibility, inheritance potential, and investment risk. Neither is universally "better"; the right answer depends on what you are insuring against.
Since 2015 nobody has to buy an annuity at all. That choice made the comparison the single most important decision in UK retirement planning, and it deserves numbers rather than slogans.
What an annuity pays in 2026
Annuity rates have recovered strongly with higher interest rates. In 2026, best-buy rates for a 65-year-old sit roughly as follows (see Hargreaves Lansdown's current tables):
| Purchaser | Approximate income per £100,000 |
|---|---|
| Age 60, single life, level | ~£6,990 / year |
| Age 65, single life, level | ~£7,370 / year |
| Age 70, single life, level | ~£8,680 / year |
| Age 65, inflation-linked (RPI) | ~£5,000 / year |
| Smokers / enhanced rates | Meaningfully higher, always disclose health |
Three things matter here. Level annuities look bigger but lose value to inflation every year, £7,370 buys noticeably less in year 15 than in year 1. Inflation-linked annuities start around £5,000 per £100,000, a third less. And a single-life annuity with no guarantee pays nothing after you die: guarantee periods of 5 or 10 years cost rate.
What drawdown does with the same money
In drawdown you take up to 25% tax-free (the PCLS, capped at £268,275 since the lifetime allowance was abolished) and leave the rest invested, withdrawing as you go. Here is the same £200,000 pot both ways, using the £7,370 rate:
| Annuity | Drawdown | |
|---|---|---|
| Tax-free cash | £0 (unless drawn via PCLS first) | £50,000 immediately |
| Annual income | £14,740 guaranteed | £7,370 withdrawn from invested £150,000 |
| Pot after 20 years | £0, the insurer keeps it | ~£109,000 remaining (at 4% growth) |
| Total received over 20 years | £294,800 | £294,800 plus a ~£109,000 pot |
| If markets crash 30% | Income unchanged | Pot and future income fall |
| If you die in year 5 | Nothing further (no guarantee) | Remaining pot passes to family, tax-free before 75 |
| Can you change your mind? | No | Yes, withdraw more, less, or stop |
That drawdown row, £7,370 a year from a pot that still holds ~£109,000 after 20 years, is the whole case for flexibility. The 43-year survival figure assumes steady 4% growth; it is an illustration, not a promise. Markets do not grow evenly, and withdrawing through a crash does damage that a table cannot show.
The honest risk list, both ways
Annuity risks: inflation erosion on level rates, total loss of capital on early death without a guarantee, and irreversibility, once bought, an annuity cannot be undone if rates or your circumstances change. There is also interest-rate timing: annuity rates move with gilt yields, so the month you buy matters.
Drawdown risks: investment performance is your problem now; withdrawing cash during market falls locks in losses (sequence-of-returns risk); and there is a real behavioural risk of drawing too fast, a pot that feels infinite rarely is. Tax is another trap: taking flexible income triggers the MPAA, cutting your pension contribution allowance from £60,000 to £10,000 a year for the rest of your life. Still working and contributing? Do not trigger the MPAA casually, our drawdown calculator page explains it in full.
The blended strategy most advisers actually recommend
For most households the question is not "drawdown or annuity" but "how much of each". The common structure:
- Annuity for the floor: enough guaranteed income (plus State Pension) to cover non-negotiable bills, with inflation protection if the rate is acceptable.
- Drawdown for everything else: one-off spending, treats, care contingency, and the inheritance you want to leave. Held with 1–2 years of income in cash so a crash never forces a sale.
This gets the psychological benefit of a wage-like guaranteed payment and the financial benefits of flexibility, without betting the entire retirement on either outcome.
Before you decide
- Get regulated advice or at minimum a free Pension Wise appointment (50+), accessing a DC pension comes with guidance entitlements most people never use.
- Shop the whole market for annuities, providers differ by 10–20% for identical circumstances, and your current pension provider's offer is rarely the best.
- Disclose your health: enhanced annuity underwriting is free money if you qualify.
- Model your own numbers: our pension drawdown calculator shows pot survival year by year, and the fixed term annuity calculator covers the halfway product that bridges both worlds.
Frequently Asked Questions
Can I have both drawdown and an annuity? Yes, and for many retirees it is the sensible middle path. A common structure is to annuitise enough of the pot to cover essential bills, and keep the rest in drawdown for flexibility, one-off spending and inheritance. This is sometimes called a blended strategy, and it avoids the biggest risk of each option taken alone.
What happens to my drawdown pot when I die? It passes to your beneficiaries. If you die before age 75, they receive it tax-free. After 75, withdrawals are taxed as their income. Compare that with a single-life annuity with no guarantee period, where payments simply stop at death, if guarantee protection matters to you, an annuity must be bought with it, which lowers the headline rate.
What is the 4% rule in pension drawdown? The 4% rule suggests withdrawing 4% of your pot each year, adjusted for inflation, gives the money a high chance of lasting 30 years. At 4% growth, a £200,000 pot withdrawing £8,000 a year holds roughly level in nominal terms. It is a rule of thumb, not a guarantee, poor early returns or higher withdrawals still deplete the pot, as our drawdown calculator shows year by year.
Does an annuity protect my money if markets crash? Yes, that is its core advantage. Once bought, the income is contractual and unaffected by market falls. A drawdown pot invested in the same crash simply falls with it, and selling investments to fund withdrawals during a crash locks in losses (sequence-of-returns risk). Retirees drawing from drawdown should hold cash for 1–2 years of income to avoid forced selling.
Will an annuity pay me more if I am in poor health? Almost always. Enhanced or impaired life annuities pay materially more for smokers and people with medical conditions, because the provider expects the income to run for fewer years. Always disclose health conditions and shop the whole market, rates for identical circumstances differ meaningfully between providers.
When can I access my pension: 55 or 57? The normal minimum pension age rises from 55 to 57 on 6 April 2028. If you turn 55 before then you keep your existing access age; anyone born on or after 6 April 1973 generally waits until 57. Drawdown and annuities are both affected equally.
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