Retirement guide
Drawdown or annuity?
Both can turn pension savings into retirement income, but they solve different problems. Drawdown keeps money invested and flexible. An annuity exchanges some or all of a pension pot for guaranteed income.
Flexibility
What is pension drawdown?
Flexi-access drawdown is available for defined contribution pensions. It allows you to move pension money into drawdown, usually take some tax-free cash, and leave the rest invested so taxable income or lump sums can be withdrawn later.
Potential advantages
- Flexible timing and amount of withdrawals.
- Money can remain invested for future growth.
- Unused pension wealth can remain available for later years or beneficiaries, subject to the rules at the time.
Risks and trade-offs
- The value of the invested pension can fall.
- Income is not guaranteed.
- Taking too much, especially after poor market returns, can reduce how long the fund lasts.
- Ongoing investment and withdrawal decisions are required.
Certainty
What is an annuity?
An annuity converts some or all of a defined contribution pension into guaranteed taxable income. A lifetime annuity can pay for the rest of your life, while fixed-term annuities can provide income for an agreed period.
Potential advantages
- Known income rather than relying on investment withdrawals.
- Can help cover essential expenditure.
- Options may be available for a spouse or dependant, guarantees and increasing income.
Risks and trade-offs
- Buying an annuity is usually difficult or impossible to reverse.
- More guarantees or dependant benefits normally reduce the starting income.
- A level annuity may lose purchasing power over time as prices rise.
Side by side
The main difference is flexibility versus certainty.
| Question | Drawdown | Annuity |
|---|---|---|
| Is income guaranteed? | No. Withdrawals depend on the pension value and your decisions. | Yes, according to the annuity terms. |
| Does money stay invested? | Usually yes. | Not in your pension pot once used to buy the annuity. |
| Can withdrawals change? | Generally yes. | Usually not after purchase, except according to selected annuity features. |
| Investment risk | You retain it. | The annuity provider takes the investment/longevity risk behind the promised income. |
| Need for ongoing decisions | Higher. | Lower once the annuity is in place. |
Before transferring or shopping around
Check whether your existing pension already contains valuable guarantees.
MoneyHelper specifically recommends checking whether an existing pension offers a guaranteed annuity rate before moving money or buying an annuity elsewhere. Older contracts can sometimes provide guaranteed income terms that are better than those available on the open market.
Guaranteed annuity rates, protected pension ages, protected tax-free cash and other scheme benefits can be lost on transfer.
Combination planning
You can potentially use both.
MoneyHelper confirms that an annuity is only one of the ways to use a defined contribution pension, and drawdown can later be used to buy an annuity. A plan can therefore combine secure and flexible income rather than treating the decision as all-or-nothing.
For example, someone might use guaranteed income to cover core expenditure while keeping part of their pension invested for discretionary spending, later-life needs or flexibility.
The right mix depends on spending needs, other secure income, health, family circumstances, investment risk, tax and how important flexibility is to you.
Before deciding
Questions worth answering first.
Income
How much essential spending must be covered regardless of investment markets?
Other pensions
Do State Pension or defined benefit pensions already provide a secure income base?
Flexibility
Do you expect spending to vary significantly through retirement?
Risk
How would you feel if the value of money left in drawdown fell during retirement?
Dependants
Do you need income or capital to remain available for a spouse, partner or other beneficiaries?
Health
Health and lifestyle information can sometimes affect the annuity income available.
Personal retirement advice
Trying to decide between secure income and flexibility?
A retirement plan can compare the role of guaranteed income, investment drawdown and other assets against your actual spending needs and objectives.
Book a conversationThis guide is for general information only and is not personal financial, investment or tax advice. Annuity rates, pension rules and tax treatment can change. Content checked against current MoneyHelper guidance on pension drawdown and annuities on 15 September 2026.