Which pension planning option provides guaranteed income for life?

• A. Annuity
• B. Drawdown strategy
• C. Lump-sum withdrawal
• D. Auto-enrolment

Answer: (A)

The main idea being tested is turning pension savings into a guaranteed income stream for life. An annuity does exactly that: you swap a lump sum for regular payments that continue for as long as you live (and often for a spouse if you choose a joint option). This shift of risk from you to the insurer provides certainty, so you won’t outlive your savings and you can budget with confidence, even if investment markets are unpredictable.

In contrast, a drawdown strategy keeps the pension pot invested and you withdraw amounts as needed. There’s no guaranteed level of income, so payments can vary with investment performance and the remaining fund, which means a higher risk of running out of money in retirement. A lump-sum withdrawal takes money out in one go, giving no ongoing payments at all. Auto-enrolment is simply the mechanism that puts you into a workplace pension and contributes over time; it isn’t a method for providing guaranteed income in retirement.