Annuity vs Drawdown Calculator United Kingdom

What the annuity vs drawdown calculator does

The calculator puts the two main ways of taking retirement income side by side in pounds. An annuity exchanges your pension pot for a guaranteed income, usually for the rest of your life. Drawdown keeps the pot invested and lets you take income flexibly, with the balance rising or falling with markets and with how much you withdraw.

Enter your pot, an annuity rate, an expected drawdown return and a withdrawal rate. The tool shows the annual income each route produces and how the drawdown pot might look after ten years, so you can see what you give up in flexibility for certainty, and what a pot you keep might be worth.

How an annuity works

You buy an annuity from an insurer, which takes your pot and promises an income in return. The annuity rate is the percentage of the pot paid to you each year. A 6% rate on a £300,000 pot produces £18,000 a year, guaranteed however long you live and whatever markets do.

The guarantee removes both investment risk and longevity risk, the danger of outliving your money. In exchange you lose flexibility: a standard annuity cannot usually be changed once bought, and a basic one leaves nothing to pass on. Rates move with interest rates and with your age and health, so the rate you are quoted is personal to you.

How drawdown works

Drawdown leaves your pot invested and lets you draw income as you choose. The withdrawal rate here is the percentage of the pot you take each year. A 4% withdrawal on a £300,000 pot gives £12,000 in the first year, less than the annuity in this example, but the pot stays yours and can grow.

Each year the pot changes by its investment return minus the income you take. If growth outpaces withdrawals the pot grows; if withdrawals outpace growth it shrinks, and a pot drawn on too hard can run out. With a 5% return and a 4% withdrawal, the £300,000 pot reaches about £331,000 after ten years. Drawdown offers the chance of more income and a legacy, but the investment and longevity risk sits with you.

Reading your result

The calculator shows three figures. The annuity annual income is the guaranteed amount your pot would buy at the rate you entered. The drawdown annual income is what your chosen withdrawal rate produces in the first year. The drawdown pot after ten years projects the invested balance forward, assuming the same return and withdrawal rate every year.

An annuity often pays more in the early years because the insurer can spend capital and pool risk across many people, while a cautious drawdown rate preserves the pot. The ten-year pot figure shows what keeping control might be worth, since a pot that holds its value leaves options a spent annuity does not.

Weighing the two routes

The right choice depends on more than the numbers on screen. Drawdown exposes you to market falls that an annuity avoids, so your appetite for risk matters. Your health and family history matter too: an annuity rewards a long life, while drawdown may suit people who want to pass money on. Some people simply prefer a guaranteed income covering essential bills.

Many retirees combine the two, using an annuity to cover essential spending and keeping the rest in drawdown. You can test that here by entering different pot sizes and rates to see how a partial annuity or a more cautious withdrawal rate changes the picture.

What you need to enter

The pension pot is the amount you are putting to work. The annuity rate is the guaranteed percentage an insurer would pay; you can get a personalised quote and enter it here. The drawdown return is your assumption for annual investment growth, and the withdrawal rate is the percentage you plan to take each year.

The future return is unknown, so try a range of assumptions. A lower return or a higher withdrawal rate shows how quickly a pot can come under pressure, and a cautious withdrawal rate shows how to make a pot last. Pessimistic figures give a more honest view of the drawdown risk than optimistic ones.

When to use this tool

Use it when deciding how to turn a defined contribution pension into retirement income: to compare a real annuity quote with a drawdown plan, to test whether a withdrawal rate is sustainable, or to put the choice into figures you can discuss with someone.

Buying an annuity in particular is hard to reverse. Use the tool to understand the options, then take regulated advice before committing.

This is general information only and not financial advice.

About This Annuity vs Drawdown Calculator

Use this annuity vs drawdown calculator to get an instant estimate based on the figures you enter. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.