📋 Quick Summary
- Client: “Robert”, 65, retired quantity surveyor, Cheshire
- DC pension pot: £387,000 (no DB pension)
- State Pension: £11,502/yr from age 67
- Decision: Hybrid — partial annuity for income floor + drawdown for flexibility
- Outcome: £22,400/yr guaranteed base income + flexible drawdown access
Robert came to us at 65 with a single DC pension pot worth £387,000 and no defined benefit pension. His wife Sandra (62) was still working part-time. The question: annuity, drawdown, or hybrid?
Robert’s Position
- DC pot: £387,000 (Aviva SIPP)
- State Pension: £11,502/yr from age 67
- ISA: £43,000 | Home: ~£420,000 (owned outright)
- Monthly outgoings: ~£2,800 (£33,600/yr)
Option A: Full Annuity (£290,250 after 25% lump sum)
| Type | Annual Income |
|---|---|
| Level, single life | ~£18,600/yr |
| Level, joint life 50% | ~£15,400/yr |
| RPI-linked, joint life 50% | ~£10,800/yr |
| CPI-capped 3%, joint life 50% | ~£12,600/yr |
Option B: Full Drawdown
4% of £290,250 = £11,610/yr — lower than annuity income, exposed to market and longevity risk.
⚠️ 2027 Pension IHT Changes: From April 2027, unused DC pension pots become subject to IHT. The death-benefit advantage of drawdown is significantly reduced.
Option C: Hybrid (Recommended)
Essential outgoings: ~£21,600/yr. Lifestyle spending: ~£12,000/yr. The plan:
- Take 25% tax-free cash (£96,750)
- Use £175,000 for CPI-capped (3%) joint-life annuity (50% to Sandra): ~£10,900/yr
- Add State Pension from 67: £11,502/yr → guaranteed floor ~£22,400/yr ✅
- Keep £115,250 in drawdown — target £6,500/yr for lifestyle
Income Timeline
| Age | Guaranteed | Drawdown/ISA | Total |
|---|---|---|---|
| 65–66 | £10,900 | £15,000+ (lump sum) | ~£25,900 |
| 67+ | £22,402 | £6,000–8,000 | ~£28,400–30,400 |
Key Factors
- Sandra’s security: Joint-life annuity guarantees her income if Robert dies first
- Enhanced annuity: Family history of heart disease checked — standard rates applied
- Open market option: Shopped all providers — differences of 20%+ are common
- 2027 IHT: Adviser recommended drawing SIPP down actively over 20 years
Robert’s Decision
- ✅ Took 25% tax-free lump sum (£96,750)
- ✅ CPI-capped (3%) joint-life annuity (50% Sandra) with £175,000 → £10,900/yr
- ✅ £115,250 in drawdown SIPP — 60/40 diversified fund, 0.35% TER
- ✅ Target £6,500/yr drawdown, reducing from age 75
- ✅ LPA confirmed in place for both
7 Lessons
- Don’t make it binary — hybrid gives security AND flexibility
- Identify your essential income floor first
- Always use the open market option
- Check for enhanced annuity eligibility
- Sequence of returns risk is real — a guaranteed floor eliminates it for essentials
- Don’t overweight death benefit — 2027 IHT changes matter
- Plan for your spouse, not just yourself
Explore Your Options
Annuity vs drawdown is one of the most important and irreversible financial decisions you’ll make. Book a free consultation.
