Drawdown versus annuity — questions worth asking first
Concrete questions UK retirees should ask before choosing pension drawdown or an annuity, beyond headline rates.
Choosing between flexi-access drawdown and an annuity is less about picking a “winner” and more about which risks you prefer to carry. Markets, longevity, and the needs of a surviving spouse all pull in different directions.
Start with spending, not products
List essential monthly costs — mortgage or rent if any remains, council tax, utilities, food, and insurance. Separate those from discretionary spending such as long-haul travel. An annuity can secure the essentials; drawdown may fund the discretionary layer if you accept fluctuation.
Questions for drawdown
- How large a cash buffer will you keep for the first three years so you are not forced sellers in a poor market?
- Who will review the withdrawal rate each year, and what triggers a cut?
- How will income tax on withdrawals interact with any part-time work or rental income?
Questions for an annuity
- Is the quote single-life or joint-life, and by how much does joint-life reduce the starting income?
- Are there escalation options, and do they match your inflation worries?
- What happens to unpaid capital on death under the options you are considering?
Mixing both
Some households secure a base income with an annuity purchased from part of the pot and leave the remainder in drawdown. That split only works if the numbers are modelled carefully — especially when one spouse is younger.
Bring annuity quotes dated within the same fortnight as your planning meeting. Rates move, and stale quotes cloud the comparison.