What this calculator does
Our pension income calculator explains how a lump sum in your pension pot translates into an ongoing income, whether you choose an annuity (a guaranteed income for life) or drawdown (keeping your pot invested and withdrawing from it). It walks through both methods side by side with a worked example, so you can see how the same pot can produce very different income patterns depending on the route you take.
See roughly how long a drawdown pot might last at a chosen withdrawal rate.
Illustrative only, assuming a fixed withdrawal rate and steady growth — real markets don't move in a straight line, and sequencing of returns (poor years early in retirement) can make a real pot run out faster than this simple model suggests. Tax on withdrawals above your tax-free cash isn't included. Get regulated financial advice before making drawdown decisions.
Once you reach the point of taking money from a defined contribution pension, you're generally choosing between two broad approaches, or a mix of both. An annuity is an insurance product: you hand over some or all of your pot in exchange for a guaranteed income, usually paid for the rest of your life, at a rate fixed when you buy it. Drawdown keeps your pot invested and lets you withdraw money as and when you choose, meaning your income isn't fixed and your remaining pot can still grow — or fall — depending on investment performance.
Neither option is universally "better" — annuities offer certainty and protection against running out of money, while drawdown offers flexibility and the potential for growth, at the cost of investment risk and the need to manage your own withdrawals carefully. Many people end up using a combination: perhaps an annuity to cover essential living costs, with the rest left in drawdown for flexibility.
For an annuity, the calculation is a rate applied to your pot: providers quote an annuity rate (expressed as a percentage or as £ per £100,000, for example) based on your age, health, and the type of annuity you choose (level, inflation-linked, single life, joint life). Multiply your pot by that rate to get your annual income, and that figure is generally fixed for life once you buy it (unless you've chosen an inflation-linked or increasing option).
For drawdown, there's no fixed formula because your income depends entirely on how much you choose to withdraw and how your investments perform. A common planning approach is to apply a "sustainable withdrawal rate" — often quoted as somewhere in the region of 3.5-4% a year of the pot's value — as a rough guide to how much you could take out annually with a reasonable chance of the pot lasting 25-30 years, though this depends heavily on investment returns, how the amount is uprated for inflation, and market conditions along the way.
Consider Alan, 66, with a pension pot of £200,000 after taking his 25% tax-free lump sum from a larger pot. Let's compare his options:
The level annuity pays the most to start with, but it never rises, so its real value erodes over time as prices increase. The inflation-linked annuity starts lower but should broadly keep pace with the cost of living. Drawdown starts similarly to the inflation-linked annuity, but the amount isn't guaranteed — it could rise if Alan's investments do well, or need to be reduced if markets fall and he wants his pot to last. These figures are illustrative only; real annuity rates and safe withdrawal guidance move with interest rates, life expectancy tables, and market conditions.
If certainty matters most to you — perhaps because you want to cover essential bills without worrying about market swings — an annuity, especially an inflation-linked one, removes that risk entirely, in exchange for a generally lower starting income and no access to the underlying capital afterwards. If flexibility and the potential for growth matter more, and you're comfortable managing (or paying someone to manage) ongoing investment risk, drawdown may suit you better, particularly if you have other guaranteed income, like the State Pension, covering your essential costs. Many people find a blended approach — part annuity, part drawdown — gives a sensible balance between security and flexibility.
Choosing a level annuity without considering how inflation will erode its real value over a retirement that could last 20-30 years.
Withdrawing too much too soon from drawdown in strong early years, leaving less of a buffer if markets later fall.
Not shopping around for annuity rates — rates vary significantly between providers and your own provider's rate is rarely the best on the market.
Forgetting to declare health conditions or lifestyle factors that could qualify you for an enhanced annuity rate.
Overlooking charges on drawdown products, which can meaningfully reduce the sustainable withdrawal rate over time.
Assuming the decision is permanent and all-or-nothing, when in practice many pots can be split between both approaches.
Yes, drawdown is generally more flexible — you can adjust withdrawals over time, and many providers allow you to buy an annuity with some or all of the remaining pot later if your circumstances change.
Generally no, an annuity purchase is usually irreversible once the cooling-off period ends, which is why comparing rates and options carefully beforehand matters so much.
It can, if withdrawals are too high relative to investment growth, or if markets underperform for a sustained period. That's why a cautious, regularly reviewed withdrawal rate is generally recommended over drawing a fixed high amount regardless of performance.
No, many people split their pot, using part to buy an annuity for guaranteed essential income and keeping the rest in drawdown for flexibility and growth potential.
Yes, certain health conditions and lifestyle factors, such as smoking, can qualify you for an "enhanced" annuity that pays a higher income, since providers expect a shorter payment period.
Want the full comparison of annuities and drawdown? Read our guide: Annuity vs drawdown explained.
Please remember: the rates and figures shown are illustrative and for general guidance only, not personalised financial advice. For a decision specific to your circumstances, speak to a regulated financial adviser, or use the guidance available from MoneyHelper (moneyhelper.org.uk) or GOV.UK.
In practice, many retirees don't choose purely one option or the other. A common approach is to work out your essential monthly costs — housing, utilities, food, insurance — and match that with guaranteed income sources: the State Pension plus, often, an annuity covering any remaining gap. Whatever's left of the pension pot after securing essentials can then be left in drawdown, giving room for discretionary spending, occasional larger costs, and the potential for further growth.
Returning to Alan's £200,000 pot, suppose his State Pension covers £11,500 a year of his roughly £12,000-a-year essential costs. Rather than putting his whole pot into an annuity or all of it into drawdown, he might use around £15,000 of his pot to buy a small annuity closing that final £500-a-year gap with certainty, and keep the remaining £185,000 in drawdown for holidays, home improvements, and flexibility, including the ability to pass on any unused amount to his family if he doesn't need it all.
This kind of blended approach isn't right for everyone — it takes more active planning and review than a single, simple choice — but it illustrates that the decision isn't binary. The right mix depends on how much guaranteed income you already have from other sources, how comfortable you are with investment risk, your health and family circumstances, and how much you value flexibility versus certainty.
Yes, in most cases you can normally take up to 25% of your pension pot as a tax-free lump sum (subject to overall limits) before choosing an annuity, drawdown, or a mix of both for the rest.
Yes, annuity rates move with factors like interest rates and life expectancy assumptions, so rates that look unattractive one year can improve in another, which is one reason some people phase their annuity purchases over time rather than committing their whole pot at once.