Annuity vs. drawdown: or can I have both?
We discuss and reveal how you could combine options to benefit from security and flexibility.
Annuity options explained
Choose your income, payments and death benefits
Important information - What you do with your pension is an important decision. Quotes are guaranteed for a limited time, and once set up an annuity can’t normally be changed. You should check you're making the right decision for your circumstances and that you understand all your options and their risks. The government's free and impartial Pension Wise service can help you and we can offer you advice if you’d like it. The information on our website isn’t personal advice.
Annuity income options
An annuity payment can stay the same or increase each year. Increases will mean you start with less, but your income will be better protected from inflation. When choosing which option is right for you, you should keep in mind how your spending might change in retirement and how inflation increases prices over time.
Level income
You will receive the same amount of income each year. This could mean the buying power of your income is reduced over time because of inflation. For example, over the past 30 years the price of goods and services has roughly doubled. Goods and services costing £10 in 1993 would now cost you £20.39.
Increasing income
You can choose for your income to increase each year by a certain percentage. Typically, this is by 3% or 5%, but other options may be available.
Income that tracks inflation
Your income will move in line with the Retail Price Index (RPI). This means your income will retain its buying power by tracking inflation.
Annuity payment options
You can choose to receive your annuity income every month, every three months, every six months or once a year. You can also choose when in your chosen period you’ll receive it.
Paid in advance
You’ll receive your first payment immediately after your annuity is set up. And then at the frequency you’ve chosen. For example, on that date every month.
Paid in arrears
Once your annuity is set up, you’ll receive your payments at the end of your chosen payment period. For example, in 6 months’ time and every 6 months after that.
Annuity death benefit options
You could choose an annuity beneficiary payout option which will pay your annuity income to your loved ones when you die, potentially tax free.
Single life
Your annuity income will pay for the rest of your life, but will stop when you die.
Joint life
You choose how much of your annuity income would continue to be paid to your beneficiary (usually your spouse or partner) if you pass away first. For example, it could be 50%, 66% or 100% of your income. The higher the proportion, the lower your annual income will be.
Guarantee periods
Your income is paid for your lifetime, and is also guaranteed to pay for a minimum length of time. If you die within this time, the income will be paid to your estate or your beneficiaries for the rest of the guarantee period. Guarantee periods of up to 30 years are available. The longer guarantee period you choose, the less income you’ll receive initially but it could mean more is paid out overall.
Value protection
Value protected annuities return the original amount you used to buy the annuity, less any income paid, to your beneficiaries. Your annual income will be lower if you choose this option. But it means that at least all the money you used to buy the annuity will be paid out, no matter what.
If you’d like value protected quotes, call us on 0117 980 9940.
Tax rules change and benefits depend on individual circumstances. The tax treatment of payments after death changes depending on your age when you die. Visit our what happens to your pension when you die page to learn more.
Get an annuity quote
It's free to get a quote and will only take a few minutes with our annuity calculator. All you need to do is answer some questions about yourself and your pension. Make sure you add your health and lifestyle details, it could mean you get thousands more in income across your lifetime. Annuity rates change regularly, and quotes are guaranteed for a limited time.
Annuity FAQs
Annuities are provided by insurance companies and offer a secure income for the rest of your life.
The annuity providers on our panel are covered by the Financial Services Compensation Scheme (FSCS). You may be entitled to compensation from the FSCS if Hargreaves Lansdown or your annuity provider cannot meet their obligations. This will depend on the circumstances of your claim.
Eligible claimants are able to make a claim to the FSCS where a provider is unable to (or likely to be unable to) meet claims against it, e.g. it has insufficient assets to make payments. The FSCS would initially look to transfer the annuity to another provider or, if this is not possible, obtain a substitute annuity within the compensation limits.
If this is not possible the policyholder will receive compensation under the FSCS. The compensation is 100% of the value of the claim with no upper limit. Further details of the FSCS can be found at www.fscs.org.uk or you can contact them on 0800 678 1100.
Providers may offer a short cooling-off period where you can cancel. But after that, once you have purchased an annuity you cannot normally cancel it, change to a different provider or get your money back.
Therefore, it’s important you consider your options and choices carefully and seek professional financial advice if you are uncertain of the suitability of an annuity, or any investment, for your circumstances.
The cooling-off period will be confirmed in the annuity providers’ key features documents, which will be included with your application, or can be requested earlier.
No. There are other options for taking an income from your pension, including drawdown.
An annuity is usually regarded as the safest option though, because it provides you a guaranteed income.
If you decide to buy a single life annuity, with no additional guarantees or options, the annuity income will stop when you die. However, there are several options you can choose at the outset to make sure your income continues to be paid to your loved ones after you’re gone.
Annuity essentials
Expert support and advice
Guidance from Pension Wise
Pension Wise is a free government service for people getting ready to receive a UK defined contribution pension (this could be a personal or workplace pension).
It offers impartial guidance on pension types, how to access savings, and the tax implications of each option.
Helpdesk support
Our Bristol-based helpdesk are here for you six days a week. Our friendly and knowledgeable team are ready to answer your questions no matter how big or small.
Please contact us or schedule a callback at your convenience.
Advice on your retirement plans
Our financial advisers can help you develop a retirement income strategy, ensuring your investments align with your goals.
They'll advise you on the best time and methods for accessing your pension.
