Can I change from drawdown to an annuity?

Written by Retirement Line

Can I convert drawdown to annuity income?

If you have pension savings in a drawdown pension, you aren’t usually locked in for life. You typically have the option of using some or all of your pension fund to buy an annuity to secure guaranteed income any time. 

Higher interest rates and gilt yields have led to higher annuity rates in recent years. This has seen some people decide to buy an annuity with money they had allocated to drawdown. But there are pros and cons of such a decision, which we will explore in this guide to changing from drawdown to an annuity.

Do you have money in drawdown and wish to see how much guaranteed income you could achieve with an annuity? Find out by using our free annuity calculator, or contact us to talk to one of our Annuity Specialists for information about your options and the latest available annuity rates, including enhanced rates.

On this page

• When can I change from drawdown to an annuity?

• Do I have to change all of my drawdown pension fund to an annuity?

• How do I change from drawdown to an annuity?

• Advantages and disadvantages of moving from drawdown to an annuity

• Can you change an annuity to drawdown?

• Helping you understand your options

When can I change from drawdown to an annuity?

The good news is that if you currently have pension savings in flexi-access drawdown, you are typically free to use some or all of those funds to purchase an annuity.

In fact, with the rise in annuity rates seen in recent years, you may decide to join other people who have decided to move from drawdown to an annuity. This would let you benefit from more income through an annuity than was the case when rates were lower.

There are some situations where it may not be possible to move from drawdown to an annuity. One of these scenarios is where your preferred annuity provider won’t let you buy an annuity with funds below a certain level. For example, the minimum is £10,000 with Aviva and Canada Life, £5,000 with Legal & General, and £2,000 with Just.

Do I have to change all of my drawdown pension fund to an annuity?

Whether you can change ALL or SOME of your drawdown fund to an annuity depends on the type of annuity you choose:

Lifetime annuity. You will typically be able to choose between changing either all or just some of your drawdown pension fund to a lifetime annuity.

Using all your fund to buy a lifetime annuity would provide a guaranteed income for the rest of your life, as well as that of your spouse (or other beneficiary) if you choose a joint-life annuity.

Alternatively, you could take a blended approach where you use some of your fund to buy an annuity for guaranteed income and keep the rest in drawdown. This would leave you with the option of using your drawdown fund to buy another annuity in the future, if you wish.

Fixed term annuity. If you move from drawdown to a fixed term annuity, you must typically use all of your pension fund to buy the annuity. You will be losing some flexibility, but a fixed term annuity can be set up in a way that leaves options open in the future. Read more in our guide to fixed term annuities.

Our Annuity Specialists will be happy to look at the details of your drawdown plan to see what is possible for you in terms of moving money from drawdown to an annuity. Alternatively, if you require advice, you may wish to consult a financial adviser who specialises in drawdown for more information. You also have the option of contacting your drawdown provider.

How do I change from drawdown to an annuity?

If you are considering transitioning from pension drawdown to an annuity, you should take several factors into account. First, it’s important to review your current financial situation, including your income, expenses and your attitude to investment risk.

You may wish to get help from an independent financial adviser to work your way through these matters. This could potentially help you make a better-informed decision about which retirement income option is right for you.

Moving from drawdown to an annuity will typically be the same as the normal process for buying an annuity. You would ideally first look at the products, rates and income available from the different annuity providers.

Please contact us at Retirement Line for information and guidance on your annuity options. Our Annuity Specialists will be delighted to help you explore the types of annuities available, including lifetime, fixed-term, single life, joint life, level and escalating options. They can also check your eligibility for enhanced lifetime annuities, which are for people with certain medical conditions or lifestyle issues such as smokers.

We can provide an up-to-date comparison of what’s available from the UK’s leading annuity providers, including quotes to find the best annuity rates. Our team can also provide information on how to proceed and liaise with your drawdown provider should you wish to go ahead with an annuity.

Advantages and disadvantages of moving from drawdown to an annuity

Before moving your pension savings from drawdown to an annuity, it is important that you consider the pros and cons of such a move.

Advantages of moving money into an annuity

For many people, the biggest advantage of moving money from drawdown to an annuity will be the reassurance of a guaranteed income – with no reliance on good investment performance. You can check how much income you could achieve with our free annuity calculator.

Annuities provide a secure, regular income, unaffected by stock market fluctuations. Whereas with drawdown there is the risk that you could run out of money, with a lifetime annuity you receive your income forever, even if you live to 100 or beyond.

An annuity is also potentially a more straightforward approach to retirement income than drawdown. There is no invested fund to manage, and no need to keep an eye on whether your withdrawals will outstrip your pension savings. 

Something else to be aware of is that people having medical conditions, or lifestyle issues such as smoking or being overweight, may be able to access more income. Please see our guide to enhanced annuities for information.

Disadvantages of moving money into an annuity

With an annuity, you will have less flexibility over how you take your income than drawdown. Once purchased, you cannot change your regular payments. This is in contrast to drawdown, where you can take a regular income or ad hoc payments and change your arrangement at any time.

Also, although a guaranteed income with an annuity might be attractive, remember that you will miss out on the potential for growth of your pension savings that drawdown offers. There is also the risk that your annuity income can reduce in real terms due to inflation, although you can guard against this with an escalating annuity.

Remember also that with drawdown you automatically have the benefit of unused funds being passed on to beneficiaries upon your death. This is not automatic with an annuity, but you can choose to add annuity death benefits. These include a joint life annuity where your spouse or other beneficiary will receive payments guaranteed for the rest of their life following your death, or a guarantee period where they would be paid for a term of your choice.

Please see our guide to pension annuities for more information, including a handy table comparing annuities and drawdown.

Can you change an annuity to drawdown?

If you have already taken out a lifetime annuity and are enjoying regular income from it, typically you will have no opportunity to change your mind.

However, a fixed term annuity can leave you with the option of putting some of your pension savings back into drawdown at the end of the annuity term. You can do this by using some of your fund to secure a guaranteed income, leaving the rest to grow at a guaranteed rate. 

At the end of the term, you will have accrued a Guaranteed Maturity Amount (GMA). You will have options for using the GMA, including to buy another annuity or invest in drawdown.

Summary: helping you understand your options

The decision to move from pension drawdown to an annuity is a significant one and you should approach it carefully. Drawdown and annuities both have their merits and drawbacks, and the ideal approach may vary from individual to individual. 

Seeking professional advice, understanding the available options, and making well-informed decisions will help you act in a way that aligns with your unique needs and aspirations. 

The Retirement Line team can help by providing you with information about your annuity options. We can also provide quotes from leading providers illustrating how much guaranteed income you can secure – often with preferential rates due to our position as the UK’s leading annuity broker*.

Please call our Annuity Specialists on 0800 652 1316, request a call back, or email us at info@retirementline.co.uk.