Pension drawdown offers a far more flexible way of drawing an income in retirement than an annuity. With drawdown, you can take as much or as little as you like from your pension, withdrawing what you need, when you need. This is opposed to an annuity, where you receive a regular, guaranteed income for the rest of your life.
Of course, with income drawdown you’re using a finite pot of money, which means it could run out if you take too much or withdraw funds too regularly.
You can use our Pension Drawdown Calculator to get a good idea of when your pension is likely to run out. The only detail you’ll need is an estimate of how much your pension is currently worth. Depending on your preference, the calculator can either show you:
There is a risk that your pension might not last long enough if you choose income drawdown. That’s because the pot is finite — every time you draw from it you reduce its total capital.
However, the main alternative to income drawdown is buying an annuity. Although this will offer you a guaranteed income for the rest of your life, annuity rates are currently very low due to a combination of economic factors, such as low interest rates and low yields on government bonds.
What’s more, there’s no inherent flexibility in this method of securing a retirement income when you compare buying an annuity with pension drawdown.
Income drawdown offers more control and flexibility than an annuity, as well as making it easier to leave a legacy to your loved ones after you’re gone.
You also don’t need to make an absolute choice between drawdown and an annuity. While an annuity is irreversible, so you can’t buy an annuity then cash it in to enter pension drawdown, you’re perfectly entitled to opt for drawdown at first and then use any remaining funds at a later point to purchase an annuity if that’s what you prefer.
Remember: Whether an annuity or drawdown is right for you will depend on your circumstances, so it’s best to discuss your situation and circumstances with an adviser before committing to either option.
If you’re considering a final salary pension transfer to switch to a defined contribution pension that allows income drawdown, then you can enter your cash equivalent transfer value or CETV into our drawdown calculator to get an idea of what you could withdraw.
If you don’t have a CETV yet, then you can get an estimate of what your final salary pension could be worth if you transferred out using our Final Salary Pension Transfer Calculator.
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How much will your pension be worth when you retire? Use our Pension Calculator to work it out and get a free copy of our Guide to a Richer Retirement.
When will your income drawdown pension run out? Enter the anticipated size of your pension pot at retirement and follow these easy steps to calculate how long your pension will last.
Find out how much your final salary pension might be worth in today's money if you considered accepting a cash equivalent transfer value from your scheme.
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