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Drawdown and Annuities: Your Retirement Income Options

Retirement Planning • Drawdown and Annuities: Your Retirement Income Options

Making Informed Pension Choices for Your Future 

As you approach retirement, one of the most important decisions you will make is how to turn your pension savings into an income that supports your desired lifestyle. Pension freedoms in the UK have given retirees more flexibility than ever before. 

With these choices comes the need to understand your options and how they fit with your specific goals and circumstances. This page will guide you through the main income options, focusing on the two most popular ways to take your pension: drawdown and annuities. 

At Hoxton Wealth, we specialise in helping clients make sense of these choices. We deliver practical, straightforward advice that balances growth, flexibility, and security, so you can enjoy retirement with confidence. 

Key Pension Income Options from Age 55 Onwards

When you reach the minimum pension access age, currently 55 but rising to 57 by 2028, several routes are available for drawing retirement income from most defined contribution pension schemes. The main options are: 

Pension Drawdown: Keep your pension invested and take money as and when you need it. 

Annuity: Convert your pension pot into a guaranteed, regular income for life or a set period. 

Lump Sums (UFPLS): Take cash as one-off lump sums, each time deciding how much to withdraw. 

Full Withdrawal: Cash in your entire pension pot, though this is rarely recommended due to potential tax implications and risk of running out of money. 

Combination: Mix drawdown, annuities, and lump sums to suit changing needs. 

This page focuses on drawdown and annuities, but our advisers discuss every route with clients to build an individual plan. 

Understanding Pension Drawdown

Pension drawdown allows you to leave your pension fund invested while taking a flexible income or lump sums. You choose how much to withdraw, how often, and when to pause or change the amount. The rest of your pension pot remains invested and has the chance to grow, though it is also exposed to market ups and downs. 

Main Drawdown Features 

  • Flexibility to withdraw regular or one-off amounts as needed. 
  • 25 percent of your pension pot can usually be taken tax-free. 
  • Remaining funds stay invested for growth potential. 
  • The flexibility to change withdrawal amounts in response to circumstances. 
  • On death, any remaining pot can be passed on to beneficiaries, usually free of inheritance tax if you die before age 75. 

Benefits 

Drawdown is popular with clients who want to control their income, keep options open, and potentially leave an inheritance. It allows for adapting withdrawals as needs change, for example, increasing income for house renovations, a special trip, or unexpected expenses. 

Considerations 

Drawdown is not risk-free. Because your funds remain invested, their value can go down as well as up. If investments underperform or withdrawals are too high, you could run out of money in later life. Ongoing management is important – reviewing your withdrawals, tax position, and investment performance each year helps avoid problems. Hoxton Wealth provides clients with regular reviews and scenario planning. 

Understanding Annuities 

An annuity is an insurance product that converts your pension savings into a guaranteed income for life or a set number of years. Once set up, an annuity provides regular payments, usually monthly, quarterly, or annually, and gives you certainty over your future income. 

Main Annuity Features 

Pays a secure income for life or a specific period. 

Options available to protect against inflation or guarantee payments for a minimum number of years. 

Can provide income for a spouse or dependants after death if selected at the outset. 

Irreversible once purchased; ongoing flexibility is limited. 

Benefits 

Annuities offer peace of mind, particularly for those who value stability and do not want to worry about managing investments in retirement. They remove the risk of running out of money, as payments are guaranteed regardless of how long you live. Some annuities can also be tailored to offer a joint income or reflect health and lifestyle factors, sometimes securing higher rates. 

Considerations 

Once funds are used to buy an annuity, you cannot change your mind or access the original lump sum. Annuity income is fixed at the rates available when you buy, with lower rates in low interest environments. It is usually not possible to pass the remaining funds on to beneficiaries unless additional options are chosen, which may reduce the starting income. 

Comparing Drawdown and Annuities

Feature 

Drawdown 

Annuity 

Income Security 

Not guaranteed, depends on investments and withdrawal rates 

Guaranteed for life or fixed term 

Flexibility 

High, can increase or decrease withdrawals 

Low, income is fixed (unless inflation-proofed option chosen) 

Investment Risk 

Remains with you 

Provider assumes risk 

Inheritance Options 

Any unused funds can be left to beneficiaries 

Only with extra-cost options 

Suitability 

Those wanting control and flexibility 

Those who value certainty and stability 

Both options can be combined, for example buying an annuity for basic living costs and using drawdown for discretionary spending and flexibility. 

Choosing the Right Route for You

Selecting between drawdown, annuities, or a combination depends on several factors, including your health, lifestyle, spending plans, attitude to investment risk, family circumstances, and other assets. 

If you want flexibility: Drawdown may work best, especially if you want to adjust income each year or hope to grow your pot through further investment. 

If you want certainty: Annuities guarantee income and free you from managing investments, appealing if you want a “set and forget” solution. 

Planning for loved ones: Drawdown often gives more options for passing wealth to the next generation, but annuities can be set up to provide for spouses or dependants if you pay for extra features. 

Changing needs: You can start with drawdown and buy an annuity later. Some people use drawdown in their early retirement and purchase an annuity when they want more security. 

Hoxton Wealth advisers help you run through these questions and model different scenarios using our digital tools, so you can pick the combination that works for you. 

Protecting Your Income in Retirement

In retirement, it is crucial to make your income last and provide a safety net for future needs. This includes: 

  • Regularly reviewing drawdown levels to avoid depleting your pot too quickly. 
  • Considering secure products like annuities for core costs. 
  • Maintaining a cash reserve for emergencies. 
  • Keeping investments diversified and in line with your changing risk profile. 
  • Planning for care costs and rising inflation over the years ahead. 

Our advisers review your retirement plan at regular intervals, making adjustments as circumstances change, so you can feel confident in your financial future. 

FAQs

The Hoxton Wealth Approach

At Hoxton Wealth, each retirement income plan is unique. We will: 

Assess your goals, other income sources, and risk preferences. 

  • Build a strategy balancing security, growth, and flexibility. 
  • Use our digital platforms to model income under different scenarios. 
  • Review your plan annually and following big life changes. 
  • Explain every option clearly, so you can make decisions with confidence. 

Important Information

This content is for general information only and is not personal financial advice or a recommendation. Pension and investment values can fall as well as rise, and you may get back less than you invest. Drawdown income is not guaranteed and may run out if investment returns are poor or withdrawals are too high. Inflation can reduce the real value of retirement income over time. 

Annuities provide income in line with contract terms and provider strength and are usually irreversible once purchased. Tax treatment depends on individual circumstances and may change; large or poorly timed withdrawals, including UFPLS or full withdrawals, can result in significant tax charges. Some services may be covered by the FSCS or FOS depending on the product and service; investment losses under drawdown are not FSCS-protected. 

Hoxton Wealth (UK) Ltd does not advise on defined benefit pensions or pensions with safeguarded benefits. Hoxton Wealth (UK) Ltd (Company No. 11180844) is authorised and regulated by the Financial Conduct Authority (FRN 586130), registered office 101 New Cavendish Street, London W1W 6XH. 

Get In Touch

Get in touch to discuss your retirement plans and explore your options with Hoxton Wealth. 

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How Can We Help You?

If you would like to speak to one of our advisers, please get in touch today.

With our years of financial planning experience, we at Hoxton Wealth are committed to helping you develop your future, focusing on what’s important for you and guiding you to make informed financial decisions. 

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