News & Views

Annuities v Drawdown

15th June 2023

In 2022 insurance companies reported that Annuity rates had hit their highest level for 14 years.  Could now be a good time to consider them?  We take a look here.

Since pension freedoms came into force in 2015 many individual reaching retirement have opted not to buy an Annuity but to look at Income Drawdown as a way of taking a regular income.

Fast forward 8 years and this is still the case for many individuals however not all. Drawdown has attracted retirees wanting flexibility whereas Annuities still offer reliability and guarantees.

The pros and cons of both are highlighted here:


Annuity Drawdown
Guarantees Income payments are guaranteed for life. No fixed payments – you chose. However your pot can go up as well as down and you could run out of money if you take excessive withdrawals.
Flexibility None. Once the Annuity is purchased no changes can be made. You can draw as much money as you want and stop start the income. You can also buy an annuity at any time with the remaining pot.
Health and Lifestyle You may be able to get a higher rate if you are in poor health or make certain lifestyle choices. Age and Lifestyle make no difference to the amount you can withdraw.
Charges No ongoing costs. There are provider fees, advice fees and fund management fees applied on an ongoing basis.
Death Benefits A spouse’s pension can be built in however this reduces the income the plan holder receives. You can nominate who you want to leave your remaining funds to on death. This does not have to be your spouse.


In Summary

What are the differences between Annuities and Drawdown?

An annuity pays you a regular income for the rest of your life, no matter how long you live. With an annuity you’ll know exactly how much you’ll receive each month.

Putting your pension pot into drawdown means you leave your money invested for you to withdraw  as and when needed. The money left invested and could grow to replace some or all of the money you have drawn down.  You can also run out of money, so unlike an annuity your income is not guaranteed.

There are also similarities between the 2 options:

  • You must be age 55 or older to access benefits
  • 25% tax free cash is available on both products
  • Income from both products is taxable
  • Means tested state benefits could be affected by income payments from drawdown or an annuity
  • Death benefits are available on both


* The value of an investment may go down as well as up, and you may get back less than you originally invested.

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