Drawdown vs annuity: which is right for your pension?
Retirement is a few years off and the pot is finally real money. What each option pays per £100,000, what happens if markets fall, and how to buy an annuity if you choose one.
Delphina provides guidance, not regulated financial advice.
The short answer
An annuity swaps your pension pot for a guaranteed income for life that usually stops when you die. Drawdown keeps your pot invested and lets you take what you need: flexible and inheritable, but it can run out. Per £100,000, a level annuity (a fixed income that does not rise with inflation) pays a 65-year-old about £8,170 a year; a cautious drawdown pays £3,500 to £4,000 and the rest stays invested. Many people use both.
Which is right depends on your pot, your State Pension and the income you need each year.
See how long your pot lastsFree to check. No card required. Guidance, not regulated advice.
Drawdown vs annuity at a glance
| Feature | Annuity | Drawdown |
|---|---|---|
| Income | Guaranteed for life | Whatever you choose to take |
| Investment risk | None, the insurer carries it | Yours |
| Risk of running out | None | Real if you withdraw too much or markets fall early |
| Flexibility | None once bought | Change income any time |
| Inflation | Level annuities stay fixed, so inflation erodes them; rising or inflation-linked ones start lower | Depends on investment returns |
| On death | Stops, unless you add protection | Remaining pot passes on |
| Ongoing effort | None | Annual review of withdrawals and investments |
| Ongoing charges | Built into the rate | Platform and fund fees, plus adviser fees if used |
What £100,000 buys you
For a 65-year-old in standard health, with tax-free cash taken separately. Annuity figures are Sharing Pensions' best-buy rates for 1 October 2026. Rates move weekly with gilt yields.
| Option | Year-one income | Later years | Left for heirs |
|---|---|---|---|
| Level annuity (fixed, no inflation increases) | £8,170 | Same, so falls in real terms | Nothing |
| Escalating annuity (fixed 3% rise, not inflation-linked) | £6,068 | Rises 3% a year, whatever inflation does | Nothing |
| Drawdown at 3.5% to 4% | £3,500 to £4,000 | Rises with inflation if returns allow | Whatever is left |
The annuity pays more because it pools longevity risk: people who die early fund those who live long. Drawdown pays less because you have to plan for living to 95 or beyond on your own. Read more on the 4 percent rule and other withdrawal methods.
Annuity rates by age
Annual income from £100,000. The older you are when you buy, the more it pays.
| Age | Single life, level (fixed, no inflation increases) | Single life, rising a fixed 3% a year (not inflation-linked) | Joint life, level (fixed), 50% to partner |
|---|---|---|---|
| 55 | £6,983 | £4,890 | £6,702 |
| 60 | £7,326 | £5,265 | £7,089 |
| 65 | £8,170 | £6,068 | £7,659 |
| 70 | £8,968 | £6,819 | £8,333 |
| 75 | £10,138 | £8,146 | £9,423 |
Source: Sharing Pensions annuity rates, 1 October 2026. Level income never changes. The 3% column rises by exactly 3% a year regardless of inflation. Inflation-linked (RPI or CPI) annuities are not shown. Paid monthly in advance, no guarantee period, no health enhancement, joint lives the same age. Check the link for this week's rates.
When each makes sense
Drawdown suits you if
- Your essentials are already covered by guaranteed income
- You want to retire early and bridge to the State Pension
- You want to vary income year to year or leave money to family
- You are comfortable with investment risk and an annual review
The middle route: use both
Work out your essential annual spending. Subtract the full new State Pension (£12,547.60 a year in 2026/27) and any defined benefit pension. Buy an annuity to cover the gap, so the bills are paid whatever markets do. Keep the rest in drawdown for holidays, gifts and flexibility.
Because annuity rates rise with age, many people start in drawdown and buy annuities in stages through their 70s. This is sometimes called annuity laddering.
How to buy an annuity in seven steps
Find out what you have
Get current values for every defined contribution pension. Check for guaranteed annuity rates in older policies: they can be worth far more than today's market rate and are lost if you transfer.
Book a free Pension Wise appointment
If you are 50 or over, MoneyHelper's Pension Wise service gives free, impartial guidance on your options by phone or face to face.
Decide on tax-free cash
You can usually take 25 percent tax-free, up to £268,275 in total. Whatever you take reduces the pot used to buy the annuity.
Choose the features
Level (fixed) or rising (by a fixed rate or with inflation), single or joint life, a guarantee period, value protection. Each extra feature lowers the starting income.
Declare your health and lifestyle
Smoking, high blood pressure, diabetes, a high BMI and many other conditions can qualify you for an enhanced annuity that pays more. Many people who qualify do not realise it.
Shop around
You do not have to buy from your pension provider. Compare quotes from the whole market using the MoneyHelper annuity comparison tool or an annuity broker. The best quote can be 10 to 20 percent higher than the worst.
Apply and transfer
The new provider requests the money from your pension scheme. Once the annuity starts it cannot be undone, beyond a short cancellation window, so check the paperwork carefully.
Annuity options explained
- Level: pays the same amount for life. The highest starting income, but inflation erodes what it buys every year.
- Escalating (fixed rate): rises by a set percentage, such as 3 percent, every year whatever inflation does. Starts lower.
- Inflation-linked: rises in line with RPI or CPI, so its buying power holds. Starts well below a level annuity, and rises less in years when inflation is low.
- Single or joint life: joint life keeps paying a partner, often at 50 or 100 percent, after you die.
- Guarantee period: pays for a minimum term, such as 10 years, even if you die sooner.
- Value protection: returns the unpaid balance of the purchase price as a lump sum on death.
- Enhanced: higher income if health or lifestyle shortens life expectancy.
- Fixed term: pays for a set number of years, then returns a lump sum. A bridge between drawdown and a lifetime annuity.
Delphina puts your pension pots, State Pension and other income in one picture, so you can see how long your money lasts at different withdrawal levels and how much an annuity would need to cover.
See how long your pot lastsFree to check. No card required. Guidance, not regulated advice.
Want to try one scenario first? Use the Monte Carlo retirement calculator.
Frequently asked questions
Is drawdown or an annuity better?
An annuity is better if you want a guaranteed income for life and no investment risk. Drawdown is better if you want flexibility, to keep your pot invested and to pass money on. Many people combine them: an annuity, plus the State Pension, covers essential bills, and drawdown pays for everything else.
How much does a £100,000 annuity pay in the UK?
On Sharing Pensions' best-buy rates for 1 October 2026, £100,000 buys a 65-year-old £8,170 a year from a level single-life annuity, meaning the income stays fixed and never rises with inflation. One that rises by a fixed 3 percent a year, whatever inflation does, starts at £6,068. A level annuity bought at 75 pays £10,138. Inflation-linked annuities are not included in these rates, so ask for a quote if you want one. Rates change weekly and health conditions can increase them, so get current quotes before deciding.
How do I buy an annuity?
Check your pension values, take free Pension Wise guidance if you are over 50, decide how much tax-free cash to take, choose the annuity features you need, declare any health conditions, and compare quotes from the whole market rather than accepting your provider's offer. The new provider then arranges the transfer.
Can I switch from drawdown to an annuity later?
Yes. You can use some or all of a drawdown pot to buy an annuity at any time, and annuity rates are higher the older you are. You cannot switch from an annuity back to drawdown once it has started.
Is annuity income taxable?
Yes. Annuity income is taxed as income through PAYE, like a salary, though no National Insurance is due. Only the 25 percent tax-free lump sum taken before buying the annuity is tax-free.
What happens to my pension when I die: drawdown vs annuity?
A drawdown pot passes to your beneficiaries free of income tax if you die before 75, and taxed at their income tax rate after 75. From April 2027 unused pensions also count towards your estate for inheritance tax. A single-life annuity stops when you die unless you added a guarantee period, value protection or a spouse's pension.
Does drawdown affect how much I can pay into a pension?
Yes. Taking taxable income from flexi-access drawdown triggers the Money Purchase Annual Allowance, cutting the amount you can pay into defined contribution pensions to £10,000 a year. Taking only the tax-free cash does not trigger it, and nor does buying a standard lifetime annuity.