Once you reach your pension age, you face the biggest money choice of retirement: annuity vs drawdown. Get it right and your income feels steady for 30 years. Get it wrong and you either run short at 85 or live more frugally than you needed to.
This review compares the two side by side on the things that matter: security, flexibility, tax and what is left for your family. It uses the FCA's latest figures, published in September 2026, and links to the official guidance at each step.
We do not sell either product, and this is guidance, not a recommendation.
Annuity vs drawdown: the quick answer
- An annuity turns some or all of your pension into a guaranteed income, usually for life. Once bought, it normally cannot be changed.
- Pension drawdown (often called flexi access drawdown) keeps your money invested. You take income when you choose, and the pot can rise or fall.
In one line: an annuity moves the risk of running out to an insurer. Drawdown keeps that risk, and the upside, with you.
How do annuities and drawdown compare?
| What matters | Annuity | Drawdown |
|---|---|---|
| Income guaranteed for life | Yes | No |
| Can change how much you take | No | Yes |
| Exposed to investment falls | No | Yes |
| Protected against living longer than expected | Yes | No |
| Money left for family | Only with options bought at the start | Yes, whatever is left |
| Inheritance tax from April 2027 | Not on the income stream itself | Unused funds usually count |
| Ongoing charges | Built into the rate | Platform and fund charges each year |
| Effort needed | Very little | Regular reviews |
Table: Plenence summary of MoneyHelper's annuity guide and drawdown guide, October 2026. Features vary by provider and product.
Annuity vs drawdown: what are people choosing right now?
The FCA's retirement income data for 2025/26, published on 24 September 2026, shows both growing:
- 401,137 plans entered drawdown, up 10.5%
- 100,144 annuities were bought, up 13.2%
- 320,762 plans were being drawn at 8% a year or more, up 24%
- just 30.8% of people accessing a pension for the first time took regulated advice
Drawdown is still four times more common. But annuity sales are rising faster.
"What this data does highlight is the growing need for better support at retirement."
David Brooks, Head of Policy, Broadstone, September 2026
When does an annuity make sense?
An annuity tends to suit you if:
- you want your essential bills covered whatever happens to markets
- you worry about living into your nineties
- you do not want to manage investments
- you have no strong wish to leave the pension to anyone
Pension annuity rates depend on your age, health, where you live and the options you choose. Enhanced annuities pay more if you have a health condition or smoke. Always shop around: MoneyHelper's annuity comparison tool shows quotes across the market for free.
Options that change an annuity
- Joint life: keeps paying your partner after you die.
- Escalating: rises each year, often with inflation, but starts lower.
- Guarantee period: keeps paying for a set number of years even if you die early.
- Value protection: returns some of what you paid to your estate.
Each option lowers your starting income. Choose the ones you would actually use.
When does drawdown make sense?
Income drawdown tends to suit you if:
- you have other secure income, such as a defined benefit pension or the State Pension, covering the basics
- you want to vary your income, for example more in your sixties for travel
- you are comfortable with investment risk and reviewing it each year
- you want what is left to pass to your family
The catch is the pace you draw. Take too much, especially after a market fall, and the pot may not recover. Drawdown pension charges matter too: platform, fund and adviser fees come off every year.
How long will my money last in retirement?
Here is a simple guide. Using the method in our methodology (5% growth less 0.5% charges, then 2% inflation, a 2.45% real return), a £300,000 pot could pay about £14,200 a year in today's money for 30 years before tax. Draw £24,000 a year instead, about 8%, and the same pot lasts around 15 years.
A pension drawdown calculator that runs year by year, like our retirement calculator, shows when your own money would run out.
A worked example: mixing both
This is an illustrative example, not a real couple.
Ken and Sue are 67 and have a joint State Pension income of about £25,000 a year. Ken has a £300,000 pension. They need £32,000 a year for essentials and would like another £8,000 for holidays and family.
They split the pension. They use part of it to buy a joint-life annuity that, with their State Pensions, covers the £32,000 essentials. The rest goes into drawdown for holidays, gifts and emergencies.
If markets fall, their bills are still paid. If they die early, the drawdown pot passes to their children. It is not the cheapest plan or the most exciting, but it fails gently.
Common annuity vs drawdown mistakes
- Buying the first annuity you are offered. Your own provider's rate may not be the best.
- Forgetting your health. Many people who qualify for an enhanced annuity never ask.
- Drawing 8% or more without a plan. That rate can empty a pot fast.
- Ignoring the April 2027 change. Unused drawdown funds will usually count for inheritance tax. See our guide to IHT on pensions.
- Treating it as all or nothing. You can mix both, and buy an annuity later from drawdown.
Our verdict
On security, the annuity wins. On flexibility and passing money on, drawdown wins. For many people, the most dependable answer to annuity vs drawdown is "some of each": guaranteed income for the essentials, invested money for the rest.
Before you choose, work out how much you need each year. Our guide on how much you need to retire shows how. If you are 50 or over with a defined contribution pension, book a free Pension Wise appointment too. For a personal recommendation, you need a regulated financial adviser.