Annuity or drawdown? How to choose, with today's rates

The short answer

An annuity swaps some or all of your pension for a guaranteed income for life. Drawdown keeps the money invested and lets you take what you want, when you want, with no guarantee it will last.

Neither is better for everyone. The useful question is narrower: how much of your spending do you need to be certain of? Bills that must be paid every month suit guaranteed income. Holidays, gifts and the car fund can come from money that stays invested. Many people end up using both.

What £100,000 buys as an annuity today

Annuity rates change every week because they follow gilt yields and interest rates. These are the best and lowest quotes shown by the government-backed MoneyHelper comparison tool for a 65-year-old with £100,000, as reported by Which? on 12 October 2026:

Two things stand out. First, the gap between the best and the lowest single-life quote is £1,533 a year, or 23% more income, for the same £100,000. Taking your own provider's offer without comparing can cost thousands over a retirement. Second, protection costs money: a rising income or a pension for your partner starts lower.

If you take your 25% tax-free cash first, you would have £75,000 left to buy an annuity. At the best single-life rate above, that is about £6,178 a year, plus the £25,000 lump sum.

What the same £100,000 gives in drawdown

In drawdown nothing is guaranteed, so people use a starting withdrawal rate: the share of the pot taken in the first year, then increased with inflation. UK research puts a cautious starting rate below the famous US "4% rule". Rathbones suggests about 3.7–3.9% before fees, and Morningstar suggests 2.5–3% for UK savers paying around 1% a year in charges.

At first sight the annuity looks twice as generous. That is because an annuity also spends your capital: it pools longevity risk, so people who die early fund those who live long. Drawdown at 3.5–4% tries to keep the pot intact for decades and leaves whatever is left to your family. You are comparing a guaranteed income with a cautious withdrawal from savings you still own.

A level annuity pays back its £100,000 purchase price, before tax, after about 12 years: at age 77 if you buy at 65. Every year you live beyond that is a gain over the money you handed over.

The inflation catch with a level annuity

A level annuity pays the same number of pounds forever. Prices do not stay still. Here is what £8,237 a year would buy, in today's money, at the Bank of England's 2% inflation target and at 3%:

At 3% inflation, a level annuity has lost more than half its spending power by age 90. Your State Pension, by contrast, rises every April, which is one reason a level annuity can still make sense for some people: the State Pension already gives you an inflation-linked floor.

Level or rising: when does the rising one catch up?

Using the joint-life quotes above, so we compare like with like:

• the level joint-life annuity pays £7,862 every year;
• the rising one starts at £5,745 and goes up 3% a year.

By our calculation, the rising annuity pays more each year from the 12th year (about £7,952 against £7,862). But it has paid less in total until the 22nd year, around age 87 if bought at 65. Choosing a rising income is a bet that you, or your partner, will live into your late 80s or beyond, and an insurance against high inflation.

Annuity or drawdown: side by side

The money purchase annual allowance matters if you are still working. It cuts the amount you can pay into pensions with tax relief from £60,000 to £10,000 a year. Taking only your tax-free cash, or buying a standard lifetime annuity, does not trigger it. Our guide to tax on pension withdrawals explains the rest.

You don't have to choose just one

A common approach is to split the pot:

1. Add up your essential spending: food, bills, council tax, insurance, transport.
2. Take away your State Pension and any final salary pension. They are already guaranteed.
3. Consider covering the gap with an annuity, so the essentials are safe whatever markets do.
4. Keep the rest in drawdown for flexible spending and for your family.

You can also start in drawdown and buy an annuity later. Annuity rates are usually higher the older you are when you buy, so some people keep the option open into their 70s.

Before you decide

• Book Pension Wise. It is free, impartial and run by MoneyHelper for people aged 50 or over with a defined contribution pension.
• Answer the health questions. Smoking, high blood pressure, diabetes and many other conditions can qualify for an enhanced annuity, which pays more.
• Compare quotes with the MoneyHelper annuity comparison tool or a broker, not just your own provider.
• Test your drawdown plan with our drawdown calculator to see how long different withdrawals might last.

This guide is general information, not personal financial advice. Rules can change and your situation may differ. For free, impartial help, contact MoneyHelper, or speak to a regulated financial adviser.