Pension Drawdown vs Annuity in 2026: Which Makes More Sense for You?

Pension drawdown is an option that allows you to take some money out of a defined contribution pension while the rest stays invested.

You can start taking money out of your pension from the age of 55. (This is rising to 57 from 6 April 2028).

Pension drawdown is sometimes called “income drawdown” or “flexi-access drawdown”.

What is a defined contribution pension?
A defined contribution pension (usually offered as a workplace pension) is built up over time by you or your employer.

The amount you’ll have in your pension depends on:

• how much was paid into the pension
• how the pension fund performed
• any fees you’ll need to pay

TIP: Check with your pension provider if you’re unsure about what type of pension you have.

An annuity provides fixed income during your retirement years. You can purchase an annuity using some or all of your pension savings.

Typically, an annuity offers you a regular guaranteed income when you reach the age of 55 (or 57 from 2028).

Although, if you have a serious health condition you might be eligible to purchase an annuity earlier. Annuities can be paid monthly, quarterly or annually.

Depending on the type of annuity you buy, you’ll receive a guaranteed sum of retirement income for either the rest of your life or a predetermined number of years.

The income you receive from an annuity depends on a few factors including:

• Your age
• Your health
• The value of your pension
• Interest rates when you search for quotes

For more tips on annuities and how they work, listen to our podcast episode The True Cost of Retirement & How to Afford It.

Some of the most common types of annuities include a:

• lifetime annuity: pays guaranteed income for the rest of your life after you buy it with a lump sum
• joint lifetime annuity: pays guaranteed income for the rest of your life and continues paying income to your partner after you pass away (this is sometimes at a lower rate)
• fixed-term annuity: pays a guaranteed income for a set number of years
• enhanced annuity: pays a higher rate of income if you have health issues or lifestyle factors that affect your life expectancy
• deferred annuity: provides income at a future start date, rather than immediately after you purchase it
• variable annuity: your income payments can rise or fall depending on the performance of the assets the annuity is invested in
• immediate needs annuity: provides income for care home fees or long-term care costs for the rest of a person’s life
• purchased life annuity: can be bought using regular savings rather than your pension pot, part of the income you receive might be free from tax.

The right type of annuity for you will depend on your circumstances and financial needs during retirement.

If you’re finding it tricky to weigh up the options or decide if an annuity is right for you at all, speaking with an independent financial adviser can help you find the best to plan your retirement income.

There isn’t a one-size-fits-all solution when it comes to deciding what to do with your pension pot.

Annuities might be suitable if you’re looking for guaranteed income for the rest of your life or a set period of your retirement.

Pension drawdown allows you the option to benefit from investment growth if you don’t withdraw all of your pension pot in one go.

It’s also possible to choose both an annuity and income drawdown as part of your retirement strategy.

This allows you to benefit from receiving a fixed baseline income while staying invested in the market.

The best option for you, all comes down to your circumstances and financial needs during retirement.

If you’re unsure of what steps to take, seeking financial advice from a qualified pension specialist can help you create a suitable plan for your retirement.