Case Study: Annuity vs Drawdown at Retirement — Robert’s Hybrid Approach (2026 Guide)

You don't have to choose between an annuity and drawdown. Many people use part of their pension to buy an annuity that, with the State Pension, covers essential spending, and keep the rest in drawdown for flexibility. In this illustrative example, a 65-year-old with a £387,000 defined contribution (DC) pot and no DB pension looks at a full annuity, full drawdown and a mix of the two.

Quick summary

• Illustrative example: "Robert", 65, a retired quantity surveyor
• DC pension pot: £387,000 (no DB pension)
• State Pension: full new State Pension expected from 67
• Approach in this example: a hybrid, with part of the pot buying an annuity for a guaranteed income floor and the rest in drawdown for flexibility
• Result in this example: a guaranteed base income of about £23,400 a year from 67, plus flexible drawdown

Imagine Robert. He is 65, with a single DC pension pot worth £387,000 and no defined benefit pension. His wife, "Sandra", 62, still works part-time. His question: should he buy an annuity, use drawdown, or do something in between?

Robert's Position

• DC pension: £387,000 in a SIPP
• State Pension: the full new State Pension expected from 67, which is £241.30 a week (about £12,548 a year) in 2026/27. You can check your own State Pension age and forecast on gov.uk.
• Savings: an ISA of £43,000, and a home worth about £420,000, owned outright
• Spending: about £2,800 a month (£33,600 a year), partly covered by Sandra's earnings for now

Option A: A Full Annuity

If Robert takes 25% tax-free cash (£96,750), he has £290,250 left to buy an annuity. Annuity rates change often and depend on age, health and the options chosen. The figures below are illustrative only.

Type of annuity	Illustrative yearly income
Level, single life	about £18,600
Level, joint life with 50% to Sandra	about £15,400
RPI-linked, joint life with 50% to Sandra	about £10,800
Increasing at CPI up to 3%, joint life with 50% to Sandra	about £12,600

An annuity gives certainty for life, but once bought it usually can't be changed, and a level annuity loses buying power as prices rise.

Option B: Full Drawdown

In drawdown, the money stays invested and Robert takes what he needs. As a rough illustration, taking 4% a year from £290,250 would give £11,610 a year. That is less than the level annuity, and the income isn't guaranteed: it depends on investment returns and on how long Robert and Sandra live.

2027 pension IHT changes: from 6 April 2027, unused pension funds and most pension death benefits are due to come into the scope of inheritance tax. One of the traditional advantages of drawdown, passing unused funds on outside the estate, is much reduced. Our article on the 2027 pension IHT overhaul explains more.

Option C: A Hybrid

Robert works out that his essential spending is about £21,600 a year and his lifestyle spending, such as holidays and gifts, about £12,000 a year. A hybrid approach in this example looks like this:

1. Take 25% tax-free cash (£96,750)
2. Use £175,000 to buy a joint-life annuity increasing at CPI up to 3%, with 50% to Sandra: about £10,900 a year
3. Add the State Pension from 67, about £12,548 a year, for a guaranteed floor of about £23,400 a year, which covers essential spending
4. Keep £115,250 in drawdown, aiming to take about £6,500 a year for lifestyle spending

Income Timeline

Age	Guaranteed income	Drawdown and savings	Total (illustrative)
65 to 66	£10,900	£15,000 or more, from the tax-free cash and ISA	about £25,900
67 onwards	about £23,400	£6,000 to £8,000	about £29,400 to £31,400

Key Factors in Robert's Example

• Sandra's security: a joint-life annuity means income continues for Sandra if Robert dies first.
• Enhanced annuities: annuity providers take health and lifestyle into account. Robert's family history of heart disease was disclosed, but in this example standard rates applied. It's always worth asking.
• Shopping around: you can buy an annuity from any provider, not just your pension provider. Quotes can vary noticeably, so comparing the whole market can make a real difference to your income for life.
• The 2027 IHT change: with unused pension funds due to count towards the estate, it may make sense for Robert to draw on his drawdown fund steadily over his retirement rather than preserve it. That is a point to discuss with a regulated financial adviser.
• Sequence risk: large market falls early in retirement can do lasting damage to a drawdown fund that is paying an income. Covering essential spending with guaranteed income reduces that risk for the things that matter most.

What Robert Decides

In this example, Robert:

1. Takes 25% tax-free cash (£96,750)
2. Buys a joint-life annuity increasing at CPI up to 3%, with 50% to Sandra, using £175,000, for about £10,900 a year
3. Keeps £115,250 in drawdown, in a diversified fund with roughly 60% in shares and 40% in bonds and other assets, and low ongoing charges
4. Aims to take about £6,500 a year from drawdown, reducing from age 75 as their spending is expected to fall
5. Makes sure both he and Sandra have lasting powers of attorney in place

Seven Lessons From Robert's Example

1. It doesn't have to be one or the other. A hybrid can give both security and flexibility.
2. Work out your essential spending first. That tells you how much guaranteed income you need.
3. Shop around for an annuity. Use your open market option rather than accepting the first quote.
4. Check whether you qualify for an enhanced annuity. Health and lifestyle can increase the income offered.
5. Sequence risk is real. A guaranteed floor protects essential spending from early market falls.
6. Don't overweight death benefits. The 2027 inheritance tax change means unused pension funds are likely to be less tax-efficient to pass on.
7. Plan for your partner, not just yourself. Think about what income your partner would have if you died first.

Getting Guidance and Advice

Free, impartial guidance is available from MoneyHelper, which explains annuities and drawdown and lets you compare annuity options. If you're 50 or over, you can book a free Pension Wise appointment about your DC pensions. A regulated financial adviser can advise on your own situation. Be wary of anyone who contacts you out of the blue about your pension, and check the FCA's ScamSmart pages first.

If you also have a defined benefit pension and want to understand how DB transfers and the advice process work, you can book a free, no-obligation chat. I don't give pension transfer advice. The chat is general information, not advice, and if you then want regulated advice, I can introduce you to an FCA-authorised firm that holds the pension transfer permission. Arthur Browns may receive a fee from the firm we introduce you to if you become their client. Introductions are for UK residents with a transfer value of £50,000 or more.

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This is an illustrative example. Robert and Sandra are hypothetical, and all figures, including annuity rates, are examples only, based on assumptions that may not apply to you. Nothing in this article is advice or a recommendation to buy any product. Please read our important information.