Annuity vs Drawdown Calculator 2026/27
Annuity vs drawdown for £100k to £1m pension pots in 2026/27: 25% tax-free lump sum, then a level annuity at September 2026 best-buy rates or 4% drawdown.
Take the 25% tax-free lump sum, then compare a lifetime annuity bought with the rest against drawing 4% a year from it, across pot sizes and retirement ages.
Pot + age scenarios
| Pot | Age | Tax-free lump sum | Annuity income / yr | Drawdown 4% / yr |
|---|---|---|---|---|
| £100,000 | 60 | £25,000 | £5,528 | £3,000 |
| £100,000 | 65 | £25,000 | £6,094 | £3,000 |
| £100,000 | 70 | £25,000 | £6,681 | £3,000 |
| £250,000 | 60 | £62,500 | £13,819 | £7,500 |
| £250,000 | 65 | £62,500 | £15,234 | £7,500 |
| £250,000 | 70 | £62,500 | £16,703 | £7,500 |
| £500,000 | 60 | £125,000 | £27,638 | £15,000 |
| £500,000 | 65 | £125,000 | £30,469 | £15,000 |
| £500,000 | 70 | £125,000 | £33,405 | £15,000 |
| £750,000 | 60 | £187,500 | £41,456 | £22,500 |
| £750,000 | 65 | £187,500 | £45,703 | £22,500 |
| £750,000 | 70 | £187,500 | £50,108 | £22,500 |
| £1,000,000 | 60 | £250,000 | £55,275 | £30,000 |
| £1,000,000 | 65 | £250,000 | £60,938 | £30,000 |
| £1,000,000 | 70 | £250,000 | £66,810 | £30,000 |
How the table is worked out
- Tax-free lump sum: 25% of the pot, capped at the £268,275 lump sum allowance (no pot in the table reaches the cap).
- Annuity: the remaining 75% buys a single-life, level annuity with no guarantee, at the best-buy rate Hargreaves Lansdown published for a £100,000 purchase on 17 September 2026, scaled in proportion. Rates for larger purchases, joint-life, inflation-linked or guaranteed annuities differ, and an enhanced annuity may pay more if you have health conditions.
- Drawdown: 4% of the same 75% in the first year. Investment returns and charges decide whether that is sustainable.
- Both incomes are before tax. Annuity and drawdown income is taxed as income, alongside any State Pension.
Frequently asked questions
Annuity vs drawdown - which is better?
Neither in general. A lifetime annuity pays a guaranteed income for life and the investment risk passes to the insurer. Drawdown keeps the money invested: income can go up or down and the pot can run out, but you choose how much to take and what is left can be passed on. Some people combine the two, using an annuity to cover essential spending.
What are UK annuity rates in 2026?
Hargreaves Lansdown's best-buy quotes generated on 17 September 2026, for £100,000 buying a single-life level annuity with no guarantee, paid £7,370 a year at 60, £8,125 at 65 and £8,908 at 70. Joint-life, inflation-linked and guaranteed annuities paid less in the same table. Rates change often and depend on health and postcode, so get quotes before deciding.
What is the 4 per cent drawdown rule?
A rule of thumb: withdraw about 4% of the pot in the first year and raise it with inflation after that, in the hope that the pot lasts around 30 years. On a £500,000 pot that is £20,000 in year one. It is not a guarantee and is not set by any UK body or regulator; poor early returns or a long life can exhaust the pot.
What triggers the Money Purchase Annual Allowance?
Taking money from a pension flexibly - for example cash or a short-term annuity from flexi-access drawdown, or an uncrystallised funds pension lump sum. Taking only the tax-free lump sum does not trigger it. Once triggered, the annual allowance for money purchase contributions falls from £60,000 to £10,000.
How does the April 2027 pension IHT change affect annuity versus drawdown?
From 6 April 2027 most unused pension funds and death benefits come into the value of an estate for Inheritance Tax (Finance Act 2026 s.66); death-in-service benefits are excluded. Money left in a drawdown pot can therefore face Inheritance Tax as well as Income Tax for some beneficiaries, which removes much of the reason to leave a pension untouched. Death benefits passing to a spouse, civil partner or registered charity remain exempt.