UK retirement income options under pension freedoms
Following the Pension Freedoms Act 2015, UK retirees can choose to purchase a guaranteed lifetime annuity, enter flexi-access drawdown, or mix both.
Annuities eliminate investment risk and the worry of outliving your pot. Drawdown allows unspent pension wealth to pass to heirs completely free of Inheritance Tax (IHT).
Worked example: UK annuity vs flexi-access drawdown
With a £150,000 UK pot, a 6.8% level single-life annuity yields £10,200 per year guaranteed. In drawdown, withdrawing £7,500 per year (5.0%) with 5.5% annual return leaves approximately £142,000 after 20 years to pass tax-efficiently to beneficiaries.
Inputs for the uk annuity versus drawdown calculator
Pension Pot & Quotes
Compare your benchmark annuity quote with realistic drawdown investment returns.
CALCULATOR QUESTIONS
UK annuity vs drawdown calculator questions
What is the UK inheritance tax treatment of drawdown pots?
Pensions held in flexi-access drawdown are generally outside your estate for UK Inheritance Tax (IHT). Beneficiaries pay zero tax if you die before 75, or pay their marginal income tax rate if you die after 75.