A 65-year-old with a £100,000 pension who used their whole pot to buy an annuity would get a yearly fixed income of £3,860. By opting for the drawdown strategy, they could take a much larger income of £6,747 every year until age 85, or £5,025 if they wanted it to last until age 95. That assumes annual investment growth of 5pc and income increasing by 2pc every year with inflation.
Similarly, someone with £500,000 saved up could secure a guaranteed income of £19,695 with an annuity. But they could draw £25,126 through to age 95 if they dipped into their pension flexibly.
However, this strategy is not foolproof. Take a little too much and you could be exhaust your pension early. Amy Pethers, of Brewin Dolphin, said someone with £500,000 who takes an annual income of £30,000 would run out of 12 years if they increased that income with inflation every year.
The larger the pension, the wider the disparity between the amount of income you can receive with an annuity versus drawdown.
For example, a £1m pension pot would afford a yearly income of £39,499 as an annuity but those in drawdown could live off £50,252.