Annuity or levy: which is best for a pension pot of £ 100,000, £ 500,000 and £ 1million


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.

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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.

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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.