Should I take my pension as drawdown or annuity?

When you reach retirement, two main options exist for turning a pension pot into income: drawdown and an annuity.

With drawdown (sometimes called flexi-access drawdown), your pension pot stays invested and you take withdrawals as and when you need them. The money that remains continues to grow — or fall — with investment markets. This approach gives flexibility over how much you take and when, but the income is not guaranteed and the pot can run out if withdrawals are too high or investment returns disappoint. A commonly cited safe withdrawal rate is around 3–4% of the pot per year, though this varies with circumstances.

An annuity works differently. You hand your pension pot to an insurance company in exchange for a guaranteed income paid for life — or for a fixed term. Once set up, the income does not change with markets, which makes budgeting straightforward. The trade-off is that you lose flexibility: you generally cannot reverse the decision or pass the remaining value to beneficiaries in the same way.

In practice, many people use a combination — taking enough as an annuity to cover essential spending and keeping the rest in drawdown for flexibility. UK savers have entered drawdown roughly four times as often as they have bought an annuity in recent years, though that does not mean drawdown is the right choice for everyone.

Other factors that typically influence the decision include your health, other income sources (such as the State Pension), attitude to investment risk, and estate planning wishes — particularly given planned changes to how unused pension funds are treated for inheritance tax from April 2027.

A regulated financial adviser can assess which combination suits your personal situation.