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Annuity or Pension Drawdown – A Comparison

19/02/18 Retirement Ready

With the introduction of the pension freedoms, there is now more choice at retirement. You will now have an important decision to make, do you choose an annuity or pension drawdown?

One of the main advantages of a lifetime annuity is your longevity risk is minimised as you will receive a guaranteed fixed monthly income throughout your lifetime, whether you live to age 80 or 100. Pension drawdown is a more flexible arrangement that offers several potential advantages but it carries more risks. In drawdown, you can run out of money in retirement.


There are three main types of annuity (lifetime, investment linked and fixed term) but all deliver a guaranteed income in exchange for a pension fund. Annuities can be purchased on a level (income does not rise) or increasing (income will rise) basis, usually at a fixed rate or in line with some measure of inflation.

Annuities can also be purchased with guarantees or protection which will continue to make income payments to a beneficiary, for a set period of time, in the event of your death. This is an important factor to consider because if you were to die soon after purchasing an annuity with no guarantees  the annuity dies with you. 

Annuity rates determine the level of income that you will receive; they vary according to economic and political factors, post code, the type of annuity and several other factors. The historic low point for annuity rates was August 2016 (just after the EU Referendum) and annuity values have remained relatively low since. 

Pension Drawdown

Pension drawdown is a more flexible arrangement that allows you to vary your income throughout retirement. Remember, how long the fund lasts depends on your withdrawals, the timing of those withdrawals and investment performanceTherefore you, (or with the help of a financial adviser) must manage that fund appropriately to deliver a flexible but sustainable income in retirement.

Drawdown delivers the opportunity to make your own investment decisions to achieve potentially higher returns but this comes with greater risks. You may pass on whatever remains in your pension fund to beneficiaries when you die. Tax free in some circumstances.

If you would like to discuss your retirement options give us a call or complete the form below and we will call you back. If you simply have a question open a Chat or email us and we will be happy to help.


This blog is intended to provide a general review of certain topics and its purpose is to inform but NOT to recommend or support any specific investment or course of action. The past is not a guide to future performance. The value of investments can go down as well as up and you may not get back the full amount you invested. Tax and financial regulations can change. Any figures quoted above are correct at the date of publication.