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Annuity v Drawdown - The Financial Times, 21st July 2023

Jason Compares the Relative Merits of Both Retirement Funding Options - With Moira O'Neill At The Financial Times

The original article was published in The Financial Times on 21st July 2023, but is only available to Financial Times subscribers. As part of our mission to empower as many people as possible to make better financial decisions, we have published below all the information Jason shared with them, so you get the maximum benefit from it (not just from what was published).




The right answer for you to the drawdown versus annuity question depends on all sorts of factors, such as your wider financial position and the role of your pension fund within that, whether you have a spouse or partner who you would like to protect financially, how comfortable you are with investment risk, your health, whether or not you need and value income flexibility, the value of the pension, and whether you would like to leave some of your pension fund as a legacy.  



As a rough guide, the more cautious you are, the more that you are relying on your pension fund to cover your retirement expenditure and the smaller your fund, the more likely you are to benefit from buying an annuity. 


Conversely, if you are comfortable with investment risk, value the opportunity to pass your pension fund to your beneficiaries and are confident that you have enough money in and outside of your pension for your retirement, then an annuity will probably look less appealing.


There is a lot of peace of mind to be gained from having a guaranteed income paid into your bank account every month that covers the essentials in life. You know where you stand and this certainty can be hugely empowering. I have yet to come across a retired client who doesn’t thoroughly appreciate their final salary pension income, for example.


There is definitely some sense, particularly if you are a cautious person, of considering using some or all of your pension fund to buy an annuity to cover your essential expenditure to give you that certainty. Ultimately, it’s what a pension was originally designed to do – pay you an income in retirement. 


Whilst there are plenty of benefits of drawdown, there is no doubt that it can be scary. If you are drawing a bit too much from your portfolio and markets fall, particularly in the early years of drawdown, you could find yourself in financial difficulties that you might struggle to recover from. 


Drawdown also increases your costs of advice and investment, so that should definitely be factored in too, especially for those with smaller pension funds.



Think of annuities and drawdown as two ends of a spectrum. Each has its own range of advantages and disadvantages and each household will benefit from these in different ways. Where you sit on that spectrum is as much emotional as it is financial and will change over time as your circumstances change.

Some people are close to the extremes which makes the decision more straightforward. But many of us are somewhere in the middle which means that over the course of our retirement, we may end benefiting from a mixture of drawdown and annuity to suit our changing circumstances.



If you would like to discuss anything raised in this article, or any other help you need to plan your own financial future, please call us for a free consultation on 020 3488 9505.

The value of your investments can go down as well as up, so you could get back less

than you invested.

Tax and Estate planning is not regulated by the Financial Conduct Authority.


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