349,992 People Chose Drawdown Last Year — The Annuity Industry Doesn't Want You to Know Why

A 65-year-old with £250,000 buying a level single-life annuity today gets roughly £19,600 per year — that's the best available rate at approximately 7.84% from providers like Scottish Widows. Sounds reasonable until you account for inflation.

At the Bank of England's 2% inflation target, that £19,600 buys you the equivalent of £13,200 in today's money after 20 years. After 25 years, it's worth £12,100. Your income doesn't shrink in nominal terms, but your purchasing power collapses.

You could buy an RPI-linked annuity instead. The best rate for a 65-year-old is around 5.68%, giving you £14,200 in year one — £5,400 less than the level annuity from day one. You're paying £5,400 per year for inflation protection you could manage yourself through a diversified portfolio.

The drawdown starting income looks lower at a 4% withdrawal rate — £10,000 from a £250,000 pot. But that pot is still invested, still growing, and still yours. Compare this with the guaranteed returns on gilts — currently yielding around 4.43% — and the flexibility advantage becomes even clearer.

The strongest argument against drawdown is sequence-of-returns risk: a market crash in your first years of retirement permanently damages your pot. This is genuine. A 30% drawdown in year one while you're withdrawing 4% is devastating.

But the solution isn't to abandon drawdown entirely. It's to hold a cash buffer — two to three years of spending in cash or short-term gilts — so you never sell equities in a falling market. With gilt yields at 4.43%, that buffer earns decent income while it protects you.

The BoE base rate sits at 3.75% with further cuts expected. Cash savings rates will fall — check our savings hub for current best buys. Gilt yields will compress. An annuity rate of 7.84% looks attractive today, but it locks you in forever — you can't benefit when conditions change.

A sensible drawdown strategy — 60% global equities, 25% bonds, 15% cash buffer — with a 3.5-4% initial withdrawal rate has survived every historical 30-year period in UK market history according to research from the Institute for Fiscal Studies, including the 1970s oil crisis, the dot-com crash, and 2008.

An annuity is binary: you buy it, you're locked in. Need £30,000 for a new roof? Too bad — your income is £19,600 and that's it. Your spouse dies and your expenses halve? Same income, no adjustment. You develop a health condition at 72 that means you're unlikely to reach 80? You've already handed over your pot.

Drawdown lets you flex. Take less in years you don't need it. Take more when you do. Pause withdrawals entirely if you go back to part-time work. The new state pension pays £241.30 per week — £12,548 per year from April 2026, just £22 under the personal allowance of £12,570. With careful drawdown planning — HMRC guidance on pension taxation details how withdrawals are taxed —, you can keep your total income in the basic rate band and pay 20% tax on pension income instead of 40%.

That's the tax optimisation an annuity can't give you. A fixed annuity of £19,600 on top of your state pension puts you at £32,148 — firmly in the basic rate band. But a drawdown lets you vary withdrawals year by year to manage your tax position, crystallise capital gains at 0% within your annual exemption, and pass remaining funds to family outside inheritance tax. Our tax planning guide covers the full picture of allowances you should be using.

Here's the fact that should end this debate for most people: if you die with an annuity, your provider keeps your money. If you die with a drawdown pot, your beneficiaries inherit it. This makes drawdown particularly powerful alongside ISA savings — both pass outside the estate.

A joint-life annuity at 50% pays roughly 7.66% for a 65-year-old — £19,150 per year on £250,000. When you die, your spouse gets £9,575. When they die, the insurance company pockets whatever's left of your quarter-million.

With drawdown, if you die before 75, your beneficiaries receive the remaining pot tax-free. After 75, they pay income tax at their marginal rate — often 20% if they're basic rate taxpayers. On a £250,000 pot with moderate growth, even after 15 years of withdrawals, there could be £150,000-£200,000 remaining.

According to ONS life expectancy data, the average UK life expectancy at 65 is 20.1 years for men and 22.7 years for women. An annuity prices for the average. If you're healthier than average, you're subsidising those who aren't. If you're less healthy, drawdown lets you access more of your money sooner.

Drawdown requires engagement. You need to review your portfolio annually, adjust your withdrawal rate, and resist the urge to panic-sell during crashes. If you're not willing or able to do this — or pay an adviser 0.5-1% per year to do it — drawdown carries real risks.

For pots under £100,000, the maths changes. Advisory fees eat a larger percentage, and the flexibility premium shrinks. A £50,000 pot generates just £2,000 per year at 4% drawdown — at that level, the simplicity and certainty of a £3,920 annuity has genuine appeal.

But for the 349,992 people who chose drawdown last year — overwhelmingly those with larger pots and longer time horizons — the decision wasn't reckless. It was rational. They looked at the numbers, understood the risks, and decided that control over their own money was worth more than a guaranteed income they'd spend decades watching inflation erode.

The pension freedom reforms of 2015 were the most significant change to UK retirement planning in a generation. Before them, most defined contribution savers were effectively forced into annuities. The FCA retirement income data shows the market has spoken decisively since then — and the verdict is overwhelmingly in favour of drawdown for those with the means and engagement to manage it.

For the full case against drawdown, read why £70.9 billion of withdrawals may signal a coming crisis — the sequence risk and cognitive decline arguments deserve serious consideration.

This article is for informational purposes only and does not constitute financial advice. Pension decisions are complex and depend on your individual circumstances, including health, other income sources, and family situation. You should seek independent financial advice from an FCA-regulated adviser before making any decisions about your pension. The value of investments and the income from them can go down as well as up, and you may get back less than you invest.