By By The Newsroom
Copyright scotsman
Q Should I go for an annuity or flexible drawdowns for my retirement income? A When planning for retirement, one key consideration is the type of income you wish to receive. People often mention terms such as “flexibility”, “guarantees”, or “enough to last a lifetime”. These objectives are all understandable, but highlight a vital point – no two individuals share the exact same requirements. Retirement income planning can be much more complex than first appears. Before 2015, retirement income options offered fewer variations. A common approach involved purchasing an annuity, which provides a guaranteed income for life, sometimes with a spouse’s pension included. Many annuities also offered annual increases to help offset inflation. While this provided certainty, it did not suit everyone. Some plan to spend more in the early years of retirement while they are active, expecting to reduce spending later. A fixed annuity structure does not easily accommodate this pattern. Similarly, for those in poor health, an annuity could be less attractive because payments typically stop on death or reduce significantly for a surviving spouse or partner. The introduction of pension freedoms in 2015 changed the landscape. Flexible drawdown allows individuals to access their pension savings in a more adaptable way. But it is important to note that drawdown does not provide guarantees. A decade on, the impact of this flexibility is still being assessed. The Financial Conduct Authority’s Financial Lives Survey (2024) reported that 3.8 million retirees are concerned about running out of income during their lifetime. Some of this concern may reflect current economic uncertainty, but it also suggests that guaranteed income remains appealing for many people. This is where flexibility can be valuable. It does not have to be an either/or choice between drawdown and an annuity. In practice, some retirees choose a combination – using drawdown for flexibility in the early years, while securing a guaranteed income for essential expenses through an annuity. The right solution for you will depend on a range of factors, including health, financial dependents, and what you wish to happen to any remaining funds after death. There is no single approach that works for everyone, which is why personalised financial advice can play an important role in building a retirement income strategy that aligns with individual goals and circumstances.
