Drawdown vs Annuity in 2025
The Maths Has Changed Significantly
For most of the 2010s, annuity rates were so poor that flexible drawdown was the obvious choice for almost everyone. Then interest rates rose sharply in 2022-23. Annuity rates roughly doubled from their historic lows. The question — drawdown or annuity? — is now a much more genuine debate, and the answer depends heavily on your personal circumstances.
What Annuities Are Paying Now
As of late 2025, a healthy 65-year-old with a £100,000 pension pot can secure around £7,600–£7,770 per year through the best single-life level annuity on the market. That represents a rate of approximately 7.6%.
Annuity Rate Comparison: £100k Pot, Age 65
| Year | Approx. Rate | Annual Income | Context |
|---|---|---|---|
| 2021 | ~3.0% | ~£3,000 | Historic low rates |
| 2023 | ~6.5% | ~£6,500 | Rates rising sharply |
| 2025 | ~7.6% | ~£7,600 | Rates stabilised higher |
For context, shopping around matters more than almost anything else. The gap between the best and worst annuity quote for the same person can be over £700/year — on a 25-year retirement that's £17,500 left on the table for not comparing. Always use an annuity broker or comparison service.
What Drawdown Offers
A commonly used sustainable withdrawal rate is 3–4% of the initial pot per year, adjusted for inflation. From a £100k pot, that's £3,000–£4,000/year. That's less than an annuity pays right now — but drawdown gives you something an annuity never can: your capital back.
The Core Trade-Off
Annuity: Higher Income, No Capital
- • ~£7,600/year guaranteed for life (£100k pot)
- • Income continues even if you live to 100
- • Capital is gone — nothing to leave
- • Level annuity eroded by inflation over time
- • No access to the underlying pot
Drawdown: Lower Income, Keeps Capital
- • ~£3,000–£4,000/year (3–4% SWR)
- • Pot can run out — sequence of returns risk
- • Capital passes to heirs (for now — see IHT 2027)
- • Flexible — can increase or decrease withdrawals
- • Pot continues to grow if markets cooperate
Enhanced Annuities: Often Overlooked
If you have any health conditions — diabetes, high blood pressure, heart disease, even being a smoker — you may qualify for an enhanced annuity, which can pay 8–20% more than standard rates. Many people don't realise they qualify, or assume their condition needs to be serious to count.
At standard rates, a £100k pot pays £7,600/year. Enhanced might get you £8,500–£9,000/year. Over a 20-year retirement that's £18,000–£28,000 extra income — from the same pot.
Joint Life vs Single Life
If you have a partner, a single-life annuity leaves them with nothing when you die. A joint-life annuity paying 50% to your surviving partner typically costs around 10–15% less income per year — but provides security for both of you. The right choice depends on your relative ages, health, and whether your partner has their own pension income.
The Inflation Problem with Level Annuities
A £7,600/year annuity bought today will still pay £7,600 in 20 years. At 2.5% inflation, the real value of that income falls to roughly £4,600 in today's money by then. An RPI-linked annuity solves this but typically starts at 5.5–6% instead of 7.6% — lower income now in exchange for inflation protection later.
So Which Is Better?
There's no universal answer. An annuity tends to make more sense if:
- You have no other reliable income and need certainty
- You have health conditions that qualify for enhanced rates
- Your family has short life expectancy
- You find the complexity of drawdown stressful to manage
- You have other assets (ISAs, property) that can stay flexible
Drawdown tends to make more sense if:
- You have other guaranteed income (state pension, DB pension) already covering basics
- You want to preserve capital to pass on
- You're comfortable managing investments
- You want flexibility to withdraw more in some years than others
- You're younger (more time for markets to recover)