A 65-year-old man with a pension of £ 100,000 who used his entire pot to buy an annuity would have an annual fixed income of £ 3,860. By opting for the opt-out strategy, they could earn a much larger income of £ 6,747 each year up to age 85, or £ 5,025 if they wanted it to last up to age 95. This assumes an annual investment growth of 5% and income increasing by 2% each year. with inflation.
Likewise, someone with £ 500,000 saved could get guaranteed income of £ 19,695 with an annuity. But they could get £ 25,126 until the age of 95 if they drew on their pension flexibly.
However, this strategy is not foolproof. Take a little too much and you could use up your pension sooner. Amy Pethers, of Brewin Dolphin, said that a person with £ 500,000 who receives an annual income of £ 30,000 would go by over 12 years if he increased that income with inflation each year.
The higher the pension, the greater the difference between the amount of income you can receive with a pension and the withdrawal.
For example, a £ 1million pension pot would allow an annual income of £ 39,499 in annuity, but those with a drawdown could live on £ 50,252.