Annuities vs Pension Drawdown

When it comes to retirement, we are all uncertain about what the right kind of investment vehicle should be. Do we take out an annuity or drawdown from an investment? Both are viable options, and you could even have a combination of both depending on the size of your pension pot, your retirement expectations, life expectancy and risk appetite.

An annuity is a product you buy with your retirement money in exchange for a guaranteed fixed monthly amount for a fixed term or for life. It provides certainty and stability during retirement.

Pension drawdown allows you to keep your retirement money invested, and income is determined by the performance of the funds invested or your needs. It is not guaranteed for life, but you do have the choice of withdrawing as much as you need at any given time, subject to funds being available.

Let’s compare both by looking at their flexibility, longevity, inheritance possibilities and taxation.


  • Pension drawdown is considered more flexible than an annuity. You can change the amount withdrawn every month and you have the benefit of your money still being invested and earning a good return. You can even change the funds invested according to the market.
  • Annuities provide the guarantee and security of a fixed income but are set in stone. You cannot change the monthly pay out or the funds that they are invested in. Once invested in an annuity, there is no going back. It is important to select the right kind of annuity according to your retirement needs.


  • Pension drawdown is reinvested and is exposed to the volatility of markets. You have the advantage of earning good returns but are also exposing your pension to the volatility of markets. There is no guarantee that your retirement funds will last the length of your retirement. There is also the risk that you could withdraw too much, leaving you with a shortage later.
  • Annuities are guaranteed for life or a fixed term, depending on what option you have chosen. There are no worries about running out of money, but your monthly income could be lower because it is not subject to market performance.


  • Pension drawdown allows you to nominate beneficiaries who will inherit the remainder of the funds.
  • Depending on the type of annuity you have chosen, it may or may not continue to pay out after you die. A single life annuity will only pay an income to you, the sole beneficiary. A joint life annuity will continue to pay your spouse or partner on your behalf after you die.


  • Beneficiaries (UK residents) will not be taxed on the remainder of funds in their pension drawdown if they die before 75.
  • Besides that, there isn’t much difference tax wise. Both allow UK citizens to withdraw up to 25% of their pension as a tax-free lump sum (if UK resident).
  • Local tax will be applicable to whatever further income you receive whether from an annuity or from drawdown. *


Both options are suitable sources of retirement income, but it will depend on your financial situation and needs at retirement. Contact your deVere adviser to assist with choosing the correct retirement options for you. [email protected]

Please note, the above is for education purposes only and does not constitute advice. You should always contact your deVere adviser for a personal consultation.
* No liability can be accepted for any actions taken or refrained from being taken, as a result of reading the above.