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The Big Question When Approaching Retirement – Annuity vs Drawdown?
Is it better to purchase an annuity or take regular income via drawdown?
If you’re approaching retirement, you’d probably love to know the answer to that one, unfortunately it is not always an easy decision to make.
In April 2015, the tax rules were changed to give people greater access to their pensions in retirement. As a result of this, where previously for many people, it may have been deemed unsuitable to access their pension via drawdown, this is now an option.
The first thing to understand is that you can’t make a straightforward comparison between annuities and drawdown. This is because they are very different plans, working in completely different ways.
An annuity is actually a type of insurance. Specifically, it insures you against running out of income if you live longer than expected. Hence it pays you a guaranteed income for life – there is no central pot of money that can ‘run out’.
By contrast, drawdown involves an invested pot of money from which you make regular withdrawals of income.
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