Breakdown
How it works
An annuity converts the pot into income for life — no investment risk, but nothing left when you die (unless you buy guarantees) and a level annuity loses value to inflation. Drawdown keeps the pot invested: you can take the same income and may leave a residual, or run out if returns disappoint or you live long.
Formula
Worked example
£300,000 at 6.5% = £19,500 a year for life. Drawdown at 4.5% paying the same for 25 years leaves about £33,000; the annuity's real value falls to £10,500 by year 25.
Frequently asked questions
Are annuity rates good now?
2026 rates of 6–7% for a 65-year-old are the best in 15 years because gilt yields are high. Enhanced annuities pay more for health conditions or smoking.
Can I do both?
Yes — annuitise enough to cover essential spending with the State Pension, keep the rest in drawdown for flexibility and inheritance.
What happens to drawdown when I die?
The remaining pot passes to beneficiaries, tax-free if you die before 75; taxed as their income after. From April 2027 it also counts for inheritance tax.