Why 2026 changed this decision
For most of the 2010s, annuities were easy to dismiss: rates languished so low that locking in felt like locking in disappointment, and drawdown became the default for almost everyone. That backdrop has gone. Higher gilt yields have pushed annuity rates to an 18-year high — in August 2026 the average single-life level annuity for a healthy 65-year-old pays around 7.75%, with best-buy quotes near 8.36%. A guaranteed £7,750 a year for life per £100,000 is a fundamentally different proposition from the sub-5% rates of the last decade, and the drawdown-vs-annuity maths deserves a genuine rerun rather than an inherited assumption.
The head-to-head at today's rates
The table prices a healthy 65-year-old taking 25% tax-free cash first, then either annuitising the remaining 75% at the current 7.75% average level rate, or drawing it down at a 4% withdrawal rate. Both routes deliver the same tax-free lump sum; the difference is what the remaining money does.
| Pot | Tax-free cash (25%) | Annuity on rest (7.75%, level, single life) | Drawdown on rest (4% rate) |
|---|---|---|---|
| £100,000 | £25,000 | £5,813 a year, guaranteed for life | £3,000 a year, flexible |
| £200,000 | £50,000 | £11,625 a year | £6,000 a year |
| £300,000 | £75,000 | £17,438 a year | £9,000 a year |
| £500,000 | £125,000 | £29,063 a year | £15,000 a year |
On raw starting income the annuity now wins by a wide margin. The drawdown column is not a like-for-like loser, though: the 4% figure is designed to rise with inflation and leave a strong chance of capital remaining, while the level annuity never increases and returns nothing at death (unless you add guarantees). A joint-life annuity pays roughly one percentage point less; RPI-linked annuities start around 1.5 points lower but protect purchasing power. See the detailed pot-level breakdowns: £100k, £200k, £300k and £500k.
What the annuity buys that drawdown can't
Certainty. An annuity cannot run out, cannot crash, and needs no management — qualities that matter more the longer retirement runs and the less you want to think about investments at 85. It also removes sequence risk entirely: no market fall can touch income that no longer depends on markets. The price is permanence (you cannot un-buy an annuity), inflation exposure on level products, and nothing left for beneficiaries beyond any guarantee period or joint-life provision you build in at purchase.
What drawdown buys that an annuity can't
Flexibility and legacy. Drawdown lets income flex year to year around tax bands, part-time work and one-off costs; the pot stays invested with growth potential; and whatever remains passes to beneficiaries. The price is that every risk — market, longevity, inflation, self-control — stays on your shoulders, and a bad early sequence of returns can do permanent damage. High annuity rates actually sharpen this comparison: the guaranteed income you give up by choosing drawdown is now much larger than it was.
Longevity and inflation: the two risks that decide it
Strip the decision down and you are really allocating two risks. Longevity risk — the danger of outliving your money — is what an annuity removes completely. A healthy 65-year-old has a very real chance of reaching their mid-90s, which means a drawdown plan has to work over a horizon nobody can predict; the annuity buyer transfers that uncertainty to an insurer, and those who live longest are effectively subsidised by those who don't. It is the one insurance policy where you collect by surviving. Inflation risk runs the other way: a level annuity's fixed payment buys less every single year — over a 25-year retirement even moderate inflation roughly halves its purchasing power — while a drawdown pot invested in real assets has at least the potential to keep pace. You can buy inflation-linked annuities, but the roughly 1.5-percentage-point lower starting rate is a steep visible price, which is why most annuity buyers still choose level and accept the erosion. Whichever risk worries you more — running out at 92, or being squeezed at 80 — should pull your answer, and your blend, in that direction.
The blended answer most people miss
This is not a binary choice. A widely used structure covers essential spending with guaranteed income — State Pension (£12,548 in 2026/27) plus an annuity bought with part of the pot — and keeps the rest in drawdown for flexible and discretionary spending. Someone with £300,000 might annuitise £100,000 (roughly £7,750 a year at 65, taking the guaranteed base above £20,000) and run £125,000 in drawdown after tax-free cash. Blending also lets you phase: stay in drawdown now and annuitise more later at higher age-rated terms — the strategy covered in switching from drawdown to an annuity.
How tax tilts the comparison
Both routes produce taxable income, but they behave differently against the tax bands. An annuity pays the same amount every year whether you need it or not: once bought, that income arrives on top of the State Pension and anything else, and you cannot switch it off in a year when extra income would tip you into 40% tax. Drawdown lets you throttle taxable withdrawals year by year — drawing more in low-income years, less when other income spikes — which over a long retirement can keep meaningfully more of the pot inside the basic-rate band. For larger pots this tax steering is one of drawdown's most valuable and least advertised features, and it's a genuine offset against the annuity's higher headline income. The blend captures both: enough annuity that essentials never depend on markets, enough drawdown that your tax position keeps some give.
Making the call
Run your own numbers with our annuity calculator, and remember annuity quotes are personal: health conditions, smoking and postcode can materially increase your rate through enhanced terms, so never accept your provider's first quote without shopping the open market. Rates near an 18-year high are not guaranteed to persist — they follow gilt yields, in both directions. Because the decision is partly irreversible and interacts with tax, an FCA-regulated adviser can model both routes — and blends between them — against your actual spending and health before you commit. If you are settling on the flexible route, start with how much you can safely draw down.