Guide · 5 minute read · Updated 10 Jul 2026

Annuity vs drawdown: which is right for you?

An annuity buys you a guaranteed income for life; drawdown keeps your pot invested and lets you take what you want, when you want. Certainty against flexibility is the real trade-off, and you do not have to pick just one.

Take the tax-free cash first, either way

Whichever route you choose, you can normally take up to 25% of your pension pot as a tax-free lump sum, capped at £268,275 for most people. On a £200,000 pot that is £50,000 tax-free. The remaining 75% is what funds your income, and it is taxable as you draw it, whether you use it to buy an annuity or leave it in drawdown.

So the annuity-versus-drawdown decision is really about that remaining 75%: convert it into a guaranteed income, or keep it invested and manage the withdrawals yourself.

Annuity: a wage for life

An annuity swaps your pot for a guaranteed income that is paid until you die, no matter how long you live or what markets do. Rates have improved sharply from their 2020 to 2021 lows. In 2026 a healthy 65-year-old can get roughly £7,000 to £7,800 a year from a £100,000 level single-life annuity, where a few years ago the same pot bought closer to £5,000.

The certainty is the point, and also the cost. A level annuity never rises, so inflation erodes it over a long retirement. You can buy one that escalates each year, or that keeps paying a spouse after you die, but each feature lowers the starting income. And in most cases the decision is permanent: once bought, you cannot change your mind or get the capital back.

Drawdown: flexible, invested, and on you

Drawdown leaves the pot invested and lets you take income as you like: more in early active years, less later, nothing in a year you do not need it. Anything left when you die can usually pass to your beneficiaries, which an annuity does not allow. The pension drawdown calculator shows how long a pot lasts at different withdrawal rates and growth assumptions.

The freedom comes with three risks you now carry yourself. Longevity risk: the pot can run dry if you live longer than planned. Sequence risk: a market crash in your early retirement years, while you are withdrawing, does lasting damage because you sell units at low prices. And the ongoing job of managing investments and withdrawal rates, which many people would rather not do in their eighties. A common guardrail is to keep withdrawals around 4% a year (see how much you need to retire).

Blend them: floor plus flexibility

For many people the best answer is both. Use part of the pot to buy an annuity that, together with the state pension, covers your essential bills: housing, food, energy, council tax. That gives you a guaranteed floor you cannot outlive. Leave the rest in drawdown for the discretionary spending, the holidays and the flexibility, and to pass on what is unspent.

Someone with a £300,000 pot might annuitise £100,000 to lock in a base income and keep £200,000 invested. You get the security of guaranteed money for the essentials and the upside and control of drawdown for everything else, which is often more comfortable than betting the whole pot on either extreme.

Common questions

Is an annuity or drawdown better?

Neither is universally better. An annuity suits you if you value a guaranteed income you cannot outlive and want to stop managing money. Drawdown suits you if you want flexibility, investment growth potential and the ability to leave the pot to family, and can accept the risk of it running down.

How much does a £100,000 annuity pay in 2026?

A healthy 65-year-old buying a level single-life annuity can currently get roughly £7,000 to £7,800 a year from £100,000, though rates change daily and depend on your age and health. Adding inflation protection or a spouse's pension lowers the starting income.

Can I take 25% tax-free with drawdown?

Yes. You can normally take up to 25% of your pot tax-free, capped at £268,275, whether you then use the rest for drawdown or an annuity. The remaining 75% is taxed as income when you draw it.

Can I have both an annuity and drawdown?

Yes, and blending them is common. Many people buy an annuity with part of their pot to cover essential bills alongside the state pension, then leave the rest in drawdown for flexibility and to pass on. You can also buy annuities in stages as you get older.

Guidance and education, not regulated financial advice.