Should I draw down or buy an annuity?

When you reach the age of 55 (57 from 2028) you’re allowed to start taking your pension. Withdrawing gradually through pension drawdown is one of the options, while converting your savings into a pension annuity is another. Each comes with different advantages and risks, and it’s important to weigh these up before taking any decision.

What is pension drawdown?

Pension drawdown keeps your pension invested, and gives you the flexibility to dictate your retirement income. The amount you receive will be determined by the fund’s performance and your needs. Drawdown isn’t guaranteed for life, however there’s no cap on how much you can withdraw at any given time – provided funds are available.

What is a pension annuity?

A pension annuity works in a similar way to an insurance product and pays out a guaranteed income for a fixed term or until death. When you retire an annuity can be bought using some or all of your pension savings.

Drawdown vs annuity

Before making a decision about the source of your retirement income it’s important to consider each option carefully by assessing your personal circumstances including life expectancy, retirement goals and risk appetite. Depending on the size of your pension fund, you may not have to choose just one option. With that in mind, let’s look at drawdown vs an annuity.



Pension drawdown is widely considered to be more flexible than an annuity, but it can carry greater risk. With pension drawdown you can move your money into one or more funds and adjust the amount and frequency of your withdrawals.

It’s possible to apply a test and learn approach based on fund performance, and income has the potential to increase. However, if your fund isn’t managed carefully your money could run out in early retirement.


An annuity provides certainty in retirement, but lacks the flexibility drawdown can provide. Once you purchase an annuity there’s no turning back – income amounts and payment frequency are set in stone so it’s essential to ensure you purchase the right annuity to suit your needs.



With pension drawdown there are no guarantees the income you draw will be stable for an extended period of time as when you reinvest your pension savings they become vulnerable to market performance.


Annuities, on the other hand, can be used to guarantee an income for various periods of time. A lifetime annuity is used to provide a regular income for life, and will continue paying out no matter how long you live. Temporary annuities pay out on a temporary basis, providing a guaranteed income for a set period of time. Annuity rates differ among providers so the amount of regular income you get for your pension may vary.



Should you die before age 75, any beneficiaries you nominate can inherit whatever money’s left in your pension drawdown without having to pay tax.


The type of annuity you purchase will determine whether it continues to pay out after you die. If you purchase a single-life annuity it will only pay an income to you, the sole beneficiary, and after you die all remaining funds will be kept by the insurer. However, if you purchase a joint-life annuity you can nominate a spouse or partner to receive income payments on your behalf until they die.


Drawdown and annuity

Once you reach the age of 55 (57 from 2028) you can start to take money from your pension. You can take up to 25% of your pension pot as a lump sum without paying tax. If you take out more than this you’ll have to pay income tax.

You can then leave the rest of your money invested and dip into it when you need it via drawdown, or you can buy a pension annuity. An annuity guarantees that you receive a regular income during your retirement. Income tax will be applicable on whatever further income you draw, in line with current income tax rate thresholds. Find out more on our dedicated How does pension drawdown tax work page.

About PensionBee

PensionBee offers a range of services that can combine all of your pensions into one simple plan. Drawdown from PensionBee offers a hassle-free way to take cash from your pension whenever you need it. In contrast to drawdown, an annuity guarantees that you receive a regular income throughout your life, which is determined by your annuity rate. If you’re considering buying an annuity, we’ve partnered with Legal & General to offer an annuity for those looking to retire with peace of mind.

Combining drawdown with an annuity

Whilst there are a number of key differences between drawdown and an annuity, your decision on how to use your retirement income doesn’t have to mean only choosing one or the other. It’s possible to combine both options together. So, you could use part of your pension to purchase an annuity whilst leaving the remainder invested with your pension provider to draw down from. For example, if you’d like the peace of mind of a guaranteed income, you may consider purchasing a lifetime annuity. This may be helpful for covering fixed costs whilst the flexibility afforded by drawdown means you can make ad-hoc withdrawals as and when you need to.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

Last edited: 06-04-2024

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