When you reach retirement with a defined contribution pension, two of the main ways to turn your pension pot into income are drawdown and an annuity. Understanding the difference is one of the most important decisions in retirement planning.
An annuity is a product you buy with your pension pot that pays you a guaranteed income, usually for the rest of your life. The advantage is certainty — a secure income that won't run out, regardless of how long you live or what markets do. The trade-off is less flexibility (the decision is usually permanent) and that rates depend on factors like age, health and interest rates at the time of purchase.
Pension drawdown keeps your pot invested and lets you withdraw income from it flexibly as needed. The advantages are flexibility and the potential for continued investment growth, plus any remaining pot can usually be passed on. The trade-offs are risk (the value can fall, and the pot can run out if you withdraw too much or live a long time) and the need to manage it.
It depends on your circumstances, attitude to risk, and need for certainty versus flexibility — and many people use a combination. These are significant, often irreversible decisions. Use Pension Wise (free government guidance for over-50s) and consider a regulated financial adviser. This is general information, not financial advice.