Annuity vs Drawdown for Expats: Which Pension Option Works Better When You Retire Abroad?

Deciding how to turn your pension into an income is one of the biggest financial choices you will ever make, and for expats it comes with extra layers. When clients in Ho Chi Minh City, Hanoi or Da Nang ask me about annuity vs drawdown, the conversation rarely stops at investment returns. It quickly moves on to sterling and the Vietnamese dong, whether a UK provider will pay into an overseas account, how the UK-Vietnam tax treaty applies and what the April 2027 inheritance tax changes mean for whatever is left.

In this guide, I explain how annuities and drawdown work, compare their strengths and weaknesses side by side and show how the decision changes when you retire abroad. Along the way, I use current annuity rates and worked examples, so you can see what each option could mean for your own income.

Key Takeaways

• An annuity turns some or all of your pension into a guaranteed income, usually for life, while drawdown keeps your pension invested and lets you withdraw income flexibly.
• Annuity rates are much stronger than they were a few years ago. As at 1 October 2026, the best level single-life rate for a 65-year-old was around 8.19%, or about £8,190 a year per £100,000.
• For expats, currency risk, provider restrictions and tax treaties matter as much as rates. Under the UK-Vietnam double taxation agreement, private pensions and annuities paid to a Vietnamese resident are taxable only in Vietnam.
• From 6 April 2027, unused drawdown funds will generally count towards your estate for UK inheritance tax, whereas certain joint life annuities will be excluded.
• You do not have to choose one or the other. Many expats use a combination, securing essential spending with an annuity and keeping the rest flexible in drawdown.

What Is an Annuity?

An annuity is a financial product you buy from an insurance company with some or all of your pension pot. In return, the insurer pays you a guaranteed income, usually for the rest of your life. Once you have bought it, the income is fixed according to the terms you chose, regardless of how stock markets perform or how long you live.

How an Annuity Works

Typically, you first take up to 25% of your pension as a tax-free lump sum, subject to an overall limit of £268,275 for most people. You then use the remaining pot to buy an annuity. The income you receive depends on your age, health, the annuity rate on the day you buy and the options you select.

Common Annuity Options

• Level annuity: pays the same amount every year, so it starts higher but loses buying power to inflation.
• Escalating or RPI-linked annuity: starts lower but rises each year by a fixed percentage or in line with inflation.
• Joint life annuity: continues paying a percentage of your income to your spouse or partner after you die.
• Guarantee period: keeps paying for a minimum number of years, even if you die early.
• Enhanced annuity: pays a higher income if you have certain health conditions or lifestyle factors that may reduce life expectancy.

Current Annuity Rates for 2026

After years of low rates, annuities have become far more attractive. The table below shows the best published rates for a £100,000 purchase as at 1 October 2026.

Source: published best-buy rates as at 1 October 2026. Rates change frequently and your own quote will depend on your circumstances.

What Is Pension Drawdown?

Pension drawdown, often called flexi-access drawdown, takes a completely different approach. Instead of exchanging your pension for a guaranteed income, you keep it invested and take money out as and when you need it. Typically, you take your tax-free cash first and then draw a taxable income from the rest. You can usually access a personal pension from age 55, rising to 57 from 6 April 2028.

How Drawdown Works

• Your pot stays invested, usually in a mix of shares, bonds and other assets, so it can continue to grow.
• You choose how much to withdraw, whether that is a regular monthly income, occasional lump sums or nothing at all for a period.
• Your income is not guaranteed, because it depends on investment performance and how much you withdraw.
• Whatever is left when you die can be passed on to your beneficiaries.

Drawdown is commonly offered through a self-invested personal pension. If you are unfamiliar with these, our guide to the SIPP pension explains how they work for expats.

The Money Purchase Annual Allowance

One important catch is worth knowing. Once you take a taxable income from drawdown, the amount you can pay into defined contribution pensions with tax relief usually drops from £60,000 to £10,000 a year. This is known as the Money Purchase Annual Allowance, and it matters if you are still working and contributing.

Annuity vs Drawdown: The Key Differences

Now that we have covered how each option works, the table below brings the main differences together.

The Case for an Annuity

• Certainty: you know exactly what you will receive, which makes budgeting simple.
• Peace of mind: you cannot outlive your income, however long you live.
• No investment decisions: market falls no longer affect your income.
• Better value than a few years ago: higher interest rates have pushed annuity rates up significantly.

The Drawbacks of an Annuity

• Irreversible: once bought, you usually cannot change your mind or cash it in.
• Inflation risk: a level annuity buys less every year.
• Limited legacy: without joint life or guarantee options, payments stop when you die.
• Locked into sterling: a problem if most of your spending is in another currency.

The Case for Drawdown

• Flexibility: you can increase, reduce or pause withdrawals as your life changes.
• Growth potential: your pot stays invested and can keep growing.
• Control over currency and investments: you can tailor your portfolio to where you live.
• Legacy potential: any money left can be passed on to your family.

The Drawbacks of Drawdown

• Investment risk: a market fall, especially early in retirement, can permanently damage your income.
• Longevity risk: if you withdraw too much or live longer than expected, your money could run out.
• Ongoing decisions and charges: drawdown needs managing, monitoring and paying for.
• Inheritance tax from 2027: unused funds will generally form part of your estate.

Why the Decision Is Different When You Retire Abroad

So far, the comparison applies to anyone retiring in the UK. For expats, however, several extra factors can tip the balance one way or the other.

Currency Risk

Most UK annuities pay a fixed amount in sterling. If you live in Vietnam, your income in dong will rise and fall with the exchange rate, and a level annuity also loses value to inflation over time. By contrast, drawdown lets you hold part of your portfolio in other currencies, although that flexibility brings its own investment risk.

Will Your Provider Pay You Abroad?

Not every UK provider will pay pension income into a foreign bank account, and some drawdown providers restrict or refuse to serve people living overseas. Many expats keep a UK bank account specifically to receive pension income, while others use international SIPPs designed for non-residents. Checking this before you commit is essential, and our guide on how to manage UK pension in Vietnam covers the practical options.

How Your Income Is Taxed Under the UK-Vietnam Treaty

Under Article 18 of the UK-Vietnam double taxation agreement, private pensions and annuities paid to a resident of Vietnam are taxable only in Vietnam. In practice, though, UK providers deduct UK income tax by default. To receive your income without UK tax, you need to apply to HMRC using form DT-Individual, which leads to an instruction for your provider to pay you without deduction.

There are two important exceptions to keep in mind. Firstly, government service pensions, such as those paid to former civil servants, teachers or NHS staff, are generally taxable only in the UK. Secondly, how Vietnam itself taxes foreign pension income is not clearly set out in practice, so it is worth taking local advice on your reporting position.

What Happens If You Move Again?

Many expats do not stay in one country for the rest of their lives. Some move between countries in Asia, while others eventually return to the UK for family or healthcare. An annuity, once bought, cannot easily adapt to these changes, whereas drawdown can be adjusted for a different currency, tax system or cost of living.

Inheritance Tax From April 2027

Finally, from 6 April 2027 most unused pension funds will be included in your estate for UK inheritance tax. This makes drawdown less attractive as a way of passing on wealth than it used to be. In contrast, a dependant's or nominee's annuity bought together with your own annuity, such as a joint life annuity, is excluded from the new rules, although payments still due under an annuity guarantee period are included. As a result, the inheritance tax position now matters when weighing up the two options, particularly for married couples.

Worked Example: Graham, 65, Retiring in Da Nang

To see how these factors come together, consider Graham. He is 65, single, lives in Da Nang and has a £400,000 SIPP. He takes his 25% tax-free cash of £100,000 to buy an apartment and keep a cash reserve, leaving £300,000 to provide an income. Using the rates above, here is how three approaches compare:

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As you can see, the annuity produces a much higher starting income, but Graham gives up flexibility, control of currency and the ability to pass on what is left. With drawdown, his starting income is lower if he wants his pot to last, yet he keeps control and could benefit from growth. The hybrid approach gives him a guaranteed base to cover essential bills in Vietnam while keeping the rest flexible.

Because Graham is a Vietnamese tax resident and his SIPP is a private pension, he can apply to HMRC to receive this income without UK tax deducted, although he will need to consider his Vietnamese tax position.

Combining an Annuity and Drawdown

As Graham's example shows, annuity vs drawdown is not always an either-or decision. Many retirees use both, either at the same time or in stages. Here are some common approaches:

• Cover essential costs with an annuity: secure enough guaranteed income for rent, food, healthcare and insurance, then use drawdown for travel and discretionary spending.
• Start with drawdown and buy an annuity later: annuity rates rise with age, so some people keep their pension invested in their 60s and buy an annuity in their 70s.
• Buy annuities in stages: spreading purchases over several years reduces the risk of buying everything when rates are low.

A structured approach to withdrawals can also help. Our guide to the retirement bucket strategy explains how to divide your money between short, medium and long-term needs.

How to Decide: A Step-by-Step Guide for Expats

With so many factors involved, it helps to work through the decision in a logical order. Each step below builds on the one before.

Step 1: Work Out Your Essential and Flexible Spending

Start by estimating your annual spending in Vietnam and splitting it into essential costs, such as housing, food, healthcare and insurance, and flexible costs, such as travel and leisure. This tells you how much income you need to be guaranteed.

Step 2: Add Up Your Guaranteed Income

Next, list any income you already have that is secure, such as a UK State Pension or a defined benefit pension. If this already covers your essential costs, you may need little or no annuity income.

Step 3: Check Your Providers and Tax Position

Then confirm whether your pension provider will pay you abroad, whether you need an international SIPP and how your income will be taxed under the UK-Vietnam treaty. This step often narrows down your options considerably.

Step 4: Get Real Annuity Quotes

Once you know how much guaranteed income you need, obtain quotes from several insurers and check whether you qualify for an enhanced annuity. Never simply accept your existing provider's offer, as rates can vary significantly between insurers.

Step 5: Decide on Your Mix and Your Legacy Goals

After that, decide how much to secure with an annuity and how much to keep in drawdown, bearing in mind your attitude to risk, your health, whether you have a spouse to protect and how much you would like to pass on. Our guide on how to manage risk in a retirement portfolio explains how to protect the drawdown part of your plan.

Step 6: Review Regularly

Finally, remember that this is not a one-off decision. Drawdown needs reviewing at least once a year, and your circumstances, exchange rates and the rules may change. Building this into a full retirement income plan keeps everything working together.

Common Mistakes to Avoid

• Buying an annuity from your existing provider without shopping around
• Choosing a level annuity without considering decades of inflation
• Withdrawing too much from drawdown in the early years of retirement
• Ignoring currency risk when most of your spending is in Vietnam
• Not applying for treaty relief, leading to UK tax being deducted unnecessarily
• Forgetting the April 2027 inheritance tax changes when planning to pass on your pension

How Benjamin Sharvell IFA Helps Expats Choose Between Annuity and Drawdown

At Benjamin Sharvell IFA, I help UK and European expats in Ho Chi Minh City, Hanoi, Da Nang and across Vietnam turn their pensions into a reliable retirement income. Being based in Vietnam means I understand the realities of living here, from currency and banking to healthcare costs, as well as the UK rules that still apply to your pension.

My support typically includes:

• Mapping your retirement spending in Vietnam and identifying how much income needs to be guaranteed
• Comparing annuity quotes and drawdown options across providers that work with expats
• Planning your tax position, including treaty relief and your Vietnamese reporting
• Designing a drawdown strategy with suitable investments, currencies and withdrawal levels
• Reviewing your plan every year, so your income keeps pace with your life and the rules

If you are still building your wider retirement plan, our guide to retirement planning for UK expats is a useful place to start.

Choosing the Right Pension Income for Life Abroad

Both annuities and drawdown have a place in retirement planning. An annuity offers certainty and protects you against living longer than your money, while drawdown offers flexibility, growth potential and control. For expats, though, the decision also hinges on currency, provider access, tax treaties and the new inheritance tax rules, which is why the right answer is often a combination of the two.

If you would like help deciding between an annuity, drawdown or a mix of both, contact me today to arrange a consultation. I will help you build a retirement income that works for your life in Vietnam.

This article is for general information only and does not constitute financial, tax or legal advice. Annuity rates and tax rules change frequently, so please seek personalised advice before making any decision.

Frequently Asked Questions About Annuity vs Drawdown

1. Is an annuity or drawdown better for expats?

Neither is better for everyone. An annuity suits those who value certainty and want to remove longevity risk, while drawdown suits those who want flexibility, control over currency and the ability to pass money on. Many expats combine the two.

2. Can I buy a UK annuity if I live in Vietnam?

Often yes, but not every insurer will sell to non-residents or pay into an overseas bank account. Many expats keep a UK bank account to receive annuity income, so check each provider's rules before buying.

3. How is my annuity taxed if I live in Vietnam?

Under the UK-Vietnam double taxation agreement, private pensions and annuities paid to a Vietnamese resident are taxable only in Vietnam. You can apply to HMRC using form DT-Individual to receive your income without UK tax deducted.

4. Can I switch from drawdown to an annuity later?

Yes. You can use some or all of your drawdown pot to buy an annuity at any time, and annuity rates generally improve with age. However, once you buy an annuity, you usually cannot switch back.

5. Will my drawdown pension be subject to inheritance tax?

From 6 April 2027, unused drawdown funds will generally be included in your estate for UK inheritance tax. Certain joint life annuities are excluded, so the inheritance tax position is now an important part of the decision.

6. How much can I safely withdraw from drawdown?

There is no single safe figure, but many planners use around 3% to 4% of the pot a year as a starting point for a long retirement. The right level depends on your age, investments, other income and how long your money needs to last.