Annuity vs drawdown — compare the trade-offs.
How income certainty, access to capital, inflation and death benefits differ. A comparison of options, not a recommendation for your circumstances.
What is the difference?
A lifetime annuity exchanges a purchase amount for contractual income for life. Drawdown leaves the pension invested and allows withdrawals, with investment risk and the possibility that the pot runs out. The same starting pot can therefore produce different income figures without either figure proving that one route is better.
| Question | Lifetime annuity | Drawdown |
|---|---|---|
| Is income known? | Set by the contract; increases depend on the selected terms | Depends on withdrawals, investment performance and remaining funds |
| Can capital be accessed? | Normally unavailable after purchase and any cancellation period | Remaining invested funds can be accessed under pension and tax rules |
| What happens with inflation? | Level payments lose purchasing power; escalating options usually start lower | Withdrawals can change, but higher spending can exhaust the pot faster |
| What can continue after death? | Depends on joint-life, guarantee and protection terms | Depends on remaining funds, beneficiaries and applicable tax rules |
Compare starting income on the same basis
Published examples dated · gross income before tax. Actual quotes depend on the person and contract.
Quote assumptions and source
HL published annuity examples, checked 12 September 2026. Published £100,000 examples, average postcode, monthly payments in advance. Joint-life examples assume a spouse three years younger. Standard examples exclude the separate smoker illustration. Gross pension income before tax; no tax-free cash deducted from the purchase amount. Other purchase amounts are scaled proportionally; actual quotes can differ.
At age 65, a £300,000 purchase amount scales to £24,243 a year before tax for the published single-life, level, no-guarantee option. A 4% first-year withdrawal from £300,000 is £12,000. That withdrawal rate is an assumption, not a guarantee of sustainable income.
The annuity income includes the insurer's contractual obligation in exchange for the capital. It is not an investment yield that leaves the original pot available. Drawdown's lower example withdrawal leaves funds invested, but those funds can fall in value. Compare tax, time horizon, death benefits and purchasing power alongside starting income.
Swipe across the table to compare all columns →
| Age-65 option | £300,000: annual | £300,000: monthly |
|---|---|---|
| Single life, level, no guarantee | £24,243 | £2,020 |
| Single life, level, 5-year guarantee | £24,090 | £2,008 |
| Single life, RPI-linked, 5-year guarantee | £16,650 | £1,388 |
| Single life, 3% escalation, 5-year guarantee | £17,994 | £1,500 |
| Joint life 50%, level, no guarantee | £22,644 | £1,887 |
| Joint life 50%, 3% escalation, no guarantee | £16,551 | £1,379 |
Taking tax-free cash first reduces the amount available for either route. For example, £75,000 cash from a £300,000 pension leaves £225,000, assuming the cash is permitted by scheme rules and available allowances. Comparing an annuity bought with £225,000 against drawdown from £300,000 would use different starting amounts.
Can the two be combined?
A hypothetical split allocates part of the pot to annuity income and leaves the rest invested. That combines some contractual income with continuing investment exposure and decisions about withdrawals. It also means less capital remains accessible than with full drawdown, and less annuity income than if the whole amount bought an annuity. Buying in stages creates further decisions and exposure to future prices; it does not guarantee a better outcome.
What needs checking before a decision?
Other pensions, State Pension entitlement, tax, household spending, health, dependants and existing scheme benefits affect the comparison. Existing guarantees or protections can be lost when pension arrangements change. Inheritance outcomes depend on the contract, beneficiary and tax rules; neither route is automatically more tax-efficient for every household.
Our annuity calculator explores dated income illustrations. The drawdown calculator explores investment and withdrawal assumptions. Neither identifies a suitable product or strategy. MoneyHelper's annuity guidance and comparison service explains the options; an appropriately authorised financial adviser can provide personal recommendations.
Frequently asked questions
Does the larger annual payment make an annuity better? No. It provides a different contract in exchange for access to capital. Starting income alone omits flexibility, inflation and death-benefit differences.
Can drawdown income be guaranteed? The modelled withdrawal is not guaranteed. Investment losses, fees and withdrawals affect the remaining pot.
Can I reverse an annuity purchase? After any contractual cancellation period, normally not. The selected payment and protection terms therefore matter.