Archived article: This article was correct at the time of publishing. Tax, investments and pension rules can change over time so the information below may not be current.

Should I take income drawdown or buy an annuity?

After you have taken your 25% tax-free cash, two common choices for accessing the remainder of your pension are taking income drawdown and buying an annuity. Each offers their own advantages and drawbacks, which is why many savers find it difficult to make a decision when they retire. To help you make the right choice, this article covers the pros and cons of both.

Lee Dooley Lee Dooley
27 March 2015

Income drawdown


Flexibility and control

Under the new flexi-access drawdown you have complete control to access as much of your money as often as you like. You can also choose your own investments, but this could mean additional time and effort unless you choose a managed solution.

Some annuities will let you choose your frequency of payment, but you have no other control over your income and once you’ve purchased an annuity you cannot change your mind (although this is expected to change from April 2016). However, there are no investments to spend time reviewing or managing.


There is no guaranteed level of income – the investments within your SIPP or other pension remain invested and can go down as well as up in value.

Your income will usually last for at least the remainder of your life, regardless of how long you live and how the markets perform. However, you may not be protected against the effects of inflation.

Your choice

With a Self-invested Personal Pension like the Best SIPP you can choose from thousands of investments, including 2,500 funds plus hundreds of trusts, ETFs and all UK shares.

Every provider offers different rates on the many different types of annuity, so it pays to shop around before making a decision. You can use online annuity services to compare personalised rates and make a purchase.

Value for money

Most investment funds and SIPPs will charge you annual fees, although your returns could be higher with drawdown than an annuity.

You make a one-off purchase for a guaranteed income that usually lasts until you die. This could prove to be good or bad value for money depending on how long you live for.

What happens when I die?

Your pension can be passed on to beneficiaries as a lump sum or an income (taken through drawdown or an annuity). The money could be subject to tax, depending on your age at death.

Usually there are no more payments, unless you purchase a joint life or guaranteed period annuity in which case a pre-agreed level of income will be paid afterwards.

Health and lifestyle benefits

Your health and lifestyle will not affect your level of income.

If you smoke cigarettes, have a health condition or take prescribed medicine you could get a higher level of income by purchasing an enhanced annuity.

Download your free factsheets to find out more

Here we’ve given you a roundup of the differences between drawdown and annuities, but how you take an income in retirement is an important decision that will affect your life for years to come. You can find out more about your options by downloading our free factsheets on annuities and drawdown or by calling us on 020 7189 2400 today.

It is also recommended that you seek regulated financial advice or visit for free guidance before taking any action.

The value of investments can go down as well as up, and you can get back less than you originally invested. The decision to access your pension is an important one and will affect your income and possibly your standard of living for years to come. Therefore we recommend that before any decision is made you receive regulated financial advice or seek guidance at

This article is not a personal recommendation or advice to invest. Prevailing tax rates and the availability of tax reliefs are dependent on your individual circumstances and are subject to change.

SIPPs are not suitable for everyone. If you don’t want to invest across different asset classes or don’t think you will make use of the investment choices that SIPPs give you then a SIPP might not be right for you. Self-directed investors should regularly review their SIPP portfolio, or seek professional advice, to ensure that the underlying investments remain in line with their pension objectives.