Annuity vs Drawdown Calculator UK
Guaranteed income for life, or a flexible pot you control? Compare what each does to your retirement income, your risk, and what’s left for your family.
When you reach the minimum pension age (currently 55, rising to 57 in April 2028) and want income from a defined-contribution pension, the big choice is between an annuity and drawdown. An annuity swaps your pot for a guaranteed income for life — at current rates a healthy 65-year-old might get around £7,500 a year for every £100,000, paid however long you live. The catch: once bought it’s usually irreversible, and a basic annuity pays nothing to your family when you die. Drawdown keeps your pot invested and lets you take income flexibly — but a sustainable rate is closer to £4,000 a year on £100,000, and you carry the risk of poor markets and of running out. So an annuity often pays more now, while drawdown keeps your capital and passes it on. The break-even is telling: it takes roughly 13 years to get your money back from a level annuity, after which it’s pure longevity insurance. There’s no universally right answer — it turns on your health, whether you have a partner, and how much you value certainty over control. Many people do both: an annuity to cover essential bills, drawdown for everything else. This calculator compares the income, risk, and legacy of each. To see how drawdown works in detail, use the Pension Drawdown Calculator; for the pot you’ll need, the FIRE Number Calculator.
Pension and retirement age
Tax-free cash
Annuity assumptions
Drawdown assumptions
Tax and inflation
Comparison result
Best projected option
Calculating…
Calculating…
Annuity year 1 net
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Drawdown year 1 net
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Annuity lifetime net
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Drawdown lifetime net
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Pot lasts until
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Break-even age
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Annuity vs drawdown — the core trade-off
The left table shows the income each option produces on a £100,000 pot — an annuity pays more now but is fixed and gives up the capital, while a sustainable drawdown pays less but keeps the pot invested and inheritable. The right shows how an annuity rate rises with age, because the provider expects to pay out for fewer years.
| Option | Income/yr | Pot left? |
|---|---|---|
| Annuity (level) | ~£7,500 | No |
| Annuity (RPI) | ~£5,500 | No |
| Annuity (joint 50%) | ~£7,150 | No |
| Drawdown (4%) | ~£4,000 | Yes |
| Age | Income/yr | Rate |
|---|---|---|
| 60 | ~£6,800 | 6.8% |
| 65 | ~£7,500 | 7.5% |
| 70 | ~£8,200 | 8.2% |
| 75 | ~£10,200 | 10.2% |
Left: a level annuity pays the most now but never changes and leaves nothing; an RPI annuity starts lower but rises with inflation; drawdown at a sustainable 4% pays less but keeps the pot invested and inheritable. Right: annuity rates rise with age. These are illustrative current market figures for a healthy person — real quotes vary by provider, health, and the day, and rates move with gilt yields.
How each option works
Both turn a pension pot into retirement income, but they sit at opposite ends of a spectrum. One trades your capital for certainty; the other keeps your capital and asks you to manage the risk. Understanding what each gives up is the whole decision.
An annuity — certainty, for the capital
An annuity is a contract with an insurer: you hand over your pot (or part of it) and they pay you a guaranteed income for life, however long you live. At current rates a healthy 65-year-old might get around £7,500 a year per £100,000 on a level annuity. The income is taxed as earnings, and you can shape it — a level annuity pays the most upfront but never rises, an RPI-linked one starts lower but tracks inflation, and a joint-life one continues paying a spouse but starts lower. The defining feature is that the longevity risk is the insurer’s: you can’t outlive the income. The trade-off is that it’s usually irreversible, and a basic annuity leaves nothing to your estate.
Drawdown — flexibility, for the risk
Drawdown keeps your pot invested and lets you take income flexibly — you choose how much and when. The flip side is that the risks are yours: poor markets, and the danger of running out. A sustainable withdrawal — often cited around 4% — gives roughly £4,000 a year on £100,000, less than the annuity, but the pot stays invested (so it can grow) and remains accessible and inheritable. You could draw more — matching the annuity’s £7,500 means a 7.5% withdrawal — but at that rate the pot would last only around 20 years at 4% growth, with no guarantee. Drawdown rewards those who can manage the risk and want to keep control of their capital.
Why an annuity pays more “now” but drawdown keeps the pot
The reason the annuity income (£7,500) is so much higher than a sustainable drawdown (£4,000) on the same pot is that the annuity is designed to spend down your capital over your expected lifetime, while pooling longevity risk across many people — those who die early subsidise those who live long. A sustainable drawdown, by contrast, tries to live off the growth and preserve the capital. So you’re not comparing like with like: the annuity converts capital into income and gives up the pot; sustainable drawdown protects the pot and produces less. The right choice depends on whether you value the higher guaranteed income or the preserved, inheritable capital.
Worked examples
Four scenarios: the income gap, the break-even age, what’s left for your family, and the hybrid approach many people choose.
Scenario 1 · The income gap
£7,500 guaranteed vs £4,000 sustainable
Level annuity: £7,500/yr guaranteed for life
Sustainable drawdown (4%): ~£4,000/yr, pot kept
On the same £100,000, a level annuity pays around £7,500 a year guaranteed, while a sustainable 4% drawdown gives roughly £4,000 — almost double from the annuity. But the annuity achieves that by consuming your capital over your lifetime, so nothing is left, whereas drawdown keeps the £100,000 invested and accessible. If you simply need the highest reliable income and aren’t concerned about leaving the pot, the annuity wins on income alone. If keeping the capital matters, the lower drawdown income is the price of that flexibility.
Scenario 2 · The break-even age
Getting your money back at about 78
Buy at 65 → break even around age 78
Live longer → annuity is pure gain
A level annuity takes about 13 years to pay back your original pot in income. Buy at 65 and you break even around 78 — close to average UK life expectancy. Live beyond that and every further year is income the insurer funds from its pool, effectively insurance against living a long time. Die before it, and a basic annuity has paid out less than you put in (which is why guarantee periods and value protection exist). This is why health and family longevity matter so much to the decision.
Scenario 3 · What’s left for family
Nothing vs the remaining pot
Drawdown on death: remaining pot passes on
(often outside your estate for inheritance tax)
This is where the two diverge most sharply. A basic single-life annuity stops when you die and pays nothing to your family. With drawdown, whatever is left in the pot can be passed to your beneficiaries, and pension pots have often sat outside the estate for inheritance tax (rules in this area are changing, so check the current position). If leaving money to others is a priority, drawdown — or an annuity with a guarantee period or joint-life cover — protects that, though those options reduce the annuity income.
Scenario 4 · The hybrid
Annuity for essentials, drawdown for the rest
£50,000 drawdown (4%): ~£2,000/yr flexible + inheritable
Total ~£5,750/yr, part guaranteed part flexible
You don’t have to choose all-or-nothing. A popular approach uses part of the pot for an annuity to guarantee your essential bills — so the lights stay on whatever happens — and keeps the rest in drawdown for flexibility, growth, and inheritance. Splitting £100,000 evenly might give £3,750 guaranteed plus £2,000 flexible. This blends the security of a floor income with the upside of an invested pot, and many advisers consider it the sensible middle ground for those who want some of both.
Which is right for you — four questions
There’s no universal answer — it depends on you. Most comparisons just list pros and cons; the real decision turns on a few personal specifics. Work through these four:
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1
How much certainty do you need?
If the thought of your income falling in a bad market keeps you up at night, an annuity’s guaranteed income buys peace of mind you can’t get from drawdown. If you’re comfortable managing investments and variable income, drawdown’s flexibility and higher potential reward may suit you better.
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2
What’s your health and family longevity?
The annuity break-even is around 13 years. If you’re in good health and your family is long-lived, an annuity’s lifetime guarantee pays off — and an enhanced annuity pays more if you have health conditions. If your life expectancy is short, a basic annuity may pay out less than your pot.
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3
Do you want to leave money to family?
A basic annuity leaves nothing to your estate; drawdown passes the remaining pot on. If inheritance matters, drawdown protects it, or you can add a joint-life or guarantee-period annuity — though those reduce the income. Weigh the legacy you want against the income you need.
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4
Could a mix be best?
It’s rarely all-or-nothing. Using an annuity to cover essential bills and drawdown for the rest gives a guaranteed floor plus flexible upside. And because annuities are usually irreversible while you can annuitise later, some start in drawdown and buy an annuity as they age and rates rise.
£100,000 pot at 65 — what each delivers
Income, risk, and legacy:
The same £100,000 produces a £7,500 guaranteed income with nothing left over, or a £4,000 sustainable income with the pot preserved and inheritable — which is “better” depends entirely on what you value. For most people the sensible reasoning is: if you prize certainty, are in good health, expect a long life, and aren’t focused on leaving a legacy, an annuity’s guaranteed lifetime income is hard to beat — and shop around, as enhanced rates and the open market option can lift it significantly. If you want flexibility, control of your capital, and to pass money on, drawdown suits — provided you can handle the investment and longevity risk. And for many, a blend captures the best of both: an annuity flooring your essentials, drawdown for the rest. This is a major, often irreversible decision, so it’s an area where free Pension Wise guidance or regulated advice is genuinely worth using.
Why annuity rates have improved
Annuities were widely written off during the ultra-low interest rate years, when rates were poor. They’ve since improved substantially — by roughly half from their 2021 lows — because annuity pricing is driven mainly by gilt yields (the return on UK government bonds), which rose sharply as the Bank of England raised its base rate. Higher gilt yields let insurers pay more. This makes the annuity-versus-drawdown question more genuinely balanced than it was a few years ago, when drawdown often looked the obvious choice. Because rates move with gilt yields, the income an annuity offers can change month to month — worth bearing in mind on timing, though no one can reliably predict the direction.
Two scenarios that change the picture
What if…
You have a health condition?
What if…
You drew the annuity income from drawdown instead?
Key annuity and drawdown terms explained
Comparing the two means meeting a cluster of retirement-income terms. The ten below cover what you’ll need to weigh an annuity against drawdown.
- Annuity
- A contract that swaps your pension pot for a guaranteed income for life from an insurer. Removes longevity risk but is usually irreversible and gives up the capital.
- Pension drawdown
- Keeping your pot invested and taking income flexibly. Higher potential reward and the pot stays inheritable, but you bear the investment and longevity risk.
- Annuity rate
- The percentage of your pot paid as annual income — e.g. 7.5% gives £7,500 on £100,000. Rises with age and is driven mainly by gilt yields.
- Level annuity
- Pays the same income every year for life. Highest starting income, but inflation erodes its buying power over time.
- RPI / escalating annuity
- Income that rises each year, with inflation (RPI) or a fixed rate. Starts lower than a level annuity but protects buying power as you age.
- Joint-life annuity
- Continues paying a spouse or partner after you die, often at 50% or 100%. Starts lower than a single-life annuity because it may pay out for longer.
- Enhanced annuity
- A higher income for those with health conditions or lifestyle factors that reduce life expectancy. Can pay 15–50% more — always declare conditions honestly.
- Break-even age
- The age at which an annuity’s income repays your original pot — about 13 years for a level annuity, so roughly 78 if bought at 65. Beyond it, pure gain.
- Longevity risk
- The risk of outliving your money. An annuity removes it (income for life); drawdown carries it, because the pot can run out if you live long or draw too much.
- Open market option
- Your right to shop around for an annuity rather than take your provider’s offer. Comparing quotes can lift your income significantly, so it’s always worth doing.
Five mistakes people make choosing income
This is a major, often irreversible decision, and there are several costly traps. These five, drawn from the recurring r/UKPersonalFinance and r/FIREUK threads, are the common ones.
Taking the first annuity offered
Accepting your own provider’s annuity without using the open market option can leave real money on the table — quotes vary between insurers, and comparing them can lift your income noticeably. Since an annuity is for life, a higher rate compounds over decades. Always shop around first.
Cost: a lower income, locked in for life Fix: compare quotes via the open market optionNot declaring health conditions
People assume health issues count against them, but with annuities the opposite is true: conditions or lifestyle factors can qualify you for an enhanced annuity paying 15–50% more. Failing to declare them means missing out on income you’re entitled to. Always be honest and complete on health.
Cost: missing 15–50% extra income Fix: declare all health and lifestyle factorsPicking a level annuity and forgetting inflation
A level annuity’s higher starting income looks attractive, but it never rises — inflation steadily erodes its buying power over a long retirement. People who don’t weigh this can find their fixed income feels much smaller in 20 years. Consider an RPI or escalating annuity for inflation protection.
Cost: shrinking real income over time Fix: weigh inflation-linked options for the long termForgetting a partner with a single-life annuity
A single-life annuity stops entirely when you die, leaving nothing for a surviving spouse. Couples who pick the higher single-life income can leave a partner with no pension income. A joint-life annuity continues paying them, at a lower starting income — usually worth it if someone depends on you.
Cost: a partner left with no income Fix: consider joint-life cover if you have a partnerTreating it as all-or-nothing
Many assume they must choose entirely one or the other, missing the hybrid option of an annuity for essential bills plus drawdown for the rest. This gives a guaranteed floor and flexible upside. And since you can annuitise later but not undo it, starting flexible and annuitising with age is also valid.
Cost: an unnecessary either/or compromise Fix: consider blending both, or annuitising laterFrequently asked questions
Is an annuity or drawdown better?
Neither is universally better — it depends on you. An annuity gives a guaranteed income for life and removes the risk of running out, but it’s usually irreversible and a basic one leaves nothing to your family. Drawdown keeps your pot invested, flexible, and inheritable, but you carry the investment and longevity risk.
An annuity tends to suit those who value certainty, are in good health, and aren’t focused on leaving a legacy; drawdown suits those who want flexibility, control, and to pass money on. Many people blend both — an annuity for essential bills, drawdown for the rest.
How much income does an annuity pay?
At current rates, a healthy 65-year-old might get around £7,500 a year for every £100,000 on a level single-life annuity — though rates vary by provider, age, health, and the day. An RPI-linked annuity starts lower (around £5,500) but rises with inflation.
Rates rise with age — roughly £6,800 at 60, £8,200 at 70, and more at 75 — because the insurer expects to pay out for fewer years. Annuity income is taxed as earnings. Always compare quotes via the open market option, as the difference between providers can be significant.
How much can I take from drawdown instead?
A sustainable drawdown is often cited around 4%, giving roughly £4,000 a year on £100,000 while keeping the pot invested so growth can roughly replace what you take. That’s less than the annuity, but the pot stays accessible and inheritable.
You could draw more — matching the annuity’s £7,500 means a 7.5% withdrawal — but at that rate a £100,000 pot would last only around 20 years at 4% growth, with no guarantee. Drawdown’s lower sustainable income is the price of keeping your capital.
What’s the break-even point on an annuity?
For a level annuity paying £7,500 a year on a £100,000 pot, it takes about 13 years to receive your original pot back in income — so roughly age 78 if you buy at 65, close to average UK life expectancy.
Live beyond that and every further year is income the insurer funds from its risk pool — effectively insurance against living a long time. Die before it, and a basic annuity has paid out less than you put in, which is why guarantee periods and joint-life options exist. This is why your health and family longevity matter so much.
What happens to my money when I die?
With a basic single-life annuity, the income stops and nothing passes to your estate. You can add a guarantee period or joint-life cover so a spouse keeps receiving income, but these reduce your starting income.
With drawdown, whatever remains in the pot can be passed to your beneficiaries, and pension pots have often sat outside the estate for inheritance tax — though rules in this area are changing, so check the current position. If leaving money to family is a priority, drawdown or an annuity with death benefits protects that.
Can I have both an annuity and drawdown?
Yes, and many people do. A popular approach uses part of the pot to buy an annuity covering essential bills — guaranteeing a floor income whatever happens — and keeps the rest in drawdown for flexibility, growth, and inheritance.
This blends the security of guaranteed income with the upside of an invested pot. Because annuities are usually irreversible while you can annuitise later, some people also start in drawdown and buy an annuity as they get older and rates improve — covering more essentials with a guarantee over time.
Are annuity rates good right now?
Annuity rates have improved substantially — by roughly half from their 2021 lows — making annuities far better value than during the ultra-low interest rate years when they were widely written off. The improvement is driven by higher gilt yields (UK government bond returns), which rose as the Bank of England raised its base rate.
Because rates move with gilt yields, the income an annuity offers changes over time, so timing can matter — though no one can reliably predict which way rates will move. The key point is that the annuity-versus-drawdown question is more genuinely balanced now than it was a few years ago.
When can I buy an annuity or start drawdown?
You can normally access a defined-contribution pension — to buy an annuity or start drawdown — from the minimum pension age, currently 55, rising to 57 from 6 April 2028. With either route you can usually take 25% of the pot tax-free first.
This is a major, often irreversible decision (especially buying an annuity), so it’s well worth using the free, impartial government service Pension Wise, or taking regulated financial advice, before you commit.
Related calculators
Choosing your retirement income connects to how drawdown works, the pot you need, and the tax around it. These calculators handle each piece.
Methodology & sources
How the comparison works
The calculator compares the income each route produces from the same pot. For an annuity, it applies an illustrative annuity rate — varying by age and annuity type (level, RPI-linked, escalating, joint-life) — to your pot to show a guaranteed annual income, and calculates a break-even point as the pot divided by the annual income. For drawdown, it shows a sustainable income (often around 4% of the pot) that keeps the capital invested, and projects how long the pot would last if you instead drew a higher income, applying your assumed growth rate year by year until the pot is exhausted. Annuity and drawdown income are both taxed as earnings; National Insurance is not charged on pension income.
These are illustrative estimates to help you understand the trade-offs, not personal advice, a quote, or a guarantee. Annuity rates are set by insurers, move daily with gilt yields, and depend on your age, health, postcode, and the options you choose — so a real quote will differ, and you should compare several via the open market option. Drawdown outcomes depend on investment returns, which can be negative, and on how much you withdraw; a poor sequence of early returns can shorten how long a pot lasts. The minimum pension age, the 25% tax-free entitlement, income tax bands, inheritance rules for pensions, and annuity pricing are set by government and the market and change over time. Buying an annuity is usually irreversible. The aim is to help you understand the choice — not to recommend an annuity, drawdown, or any particular product.
Illustrative figures used (current market)
- Level annuity, age 65: ~£7,500/yr per £100,000 (~7.5%)
- RPI-linked, age 65: ~£5,500/yr, rising with inflation
- Joint-life 50%, age 65: ~£7,150/yr, continues to spouse
- Annuity rate rises with age: ~6.8% at 60 to ~10.2% at 75
- Enhanced annuities: 15–50% more for qualifying health
- Sustainable drawdown: ~4% (~£4,000/yr per £100,000)
- Break-even (level annuity): ~13 years (around age 78)
- Minimum pension age: 55, rising to 57 from 6 April 2028
- Income from both is taxed as earnings; no National Insurance