Flex first, fix later: a retirement strategy to consider

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published 30 April 2025

Savers approaching retirement usually either buy an annuity that pays a guaranteed income for life (but with no prospect of further investment growth) or draw income directly from their pension funds, which can be left invested but offer no guarantees about long-term security. Yet maybe there is a middle way. The Institute for Fiscal Studies (IFS) thinks so. It has just published new research advocating a “flex first, fix later” approach to retirement income. The think tank suggests this should be the default option for savers with money-purchase pension savings – as opposed to guaranteed final-salary benefits. People could automatically be switched into products offering this approach unless they have given different instructions, the IFS suggests.

The idea is simple. In the first ten years of your retirement, you would take the income-drawdown approach. Your pension savings would remain invested to continue growing, and you’d take pension income directly from this pot. Then at a pre-defined point in time, you would take the next step, using the value of the pension fund you have to purchase a guaranteed annuity income for the rest of your life. The IFS points to several advantages of this approach. You wouldn’t have to give up on all future investment growth when you may still have decades of life ahead of you. And you wouldn’t have to worry about managing your pension fund to last for the whole of that period. You’d also be likely to get a higher annuity income by buying it later in life. And you’d be making key decisions at a time when people are less likely to be suffering from cognitive decline.

All of which makes perfect sense. However, while the IFS argues that the pension industry now needs to develop “flex first, fix later” products, it’s important to recognise there is nothing to stop you taking this approach for yourself. You’re already entitled to opt for an income-drawdown product when you first retire and then to buy an annuity at a later date, at a time of your choosing.

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Keep reviewing your plans

One reason the IFS advocates a default approach is that it worries many people won’t stay on top of their retirement planning – that they’ll miss opportunities to buy an annuity at a favourable time, say, or just forget all about it. But there are ways to build in some safeguards to protect against this danger. Most obviously, meeting regularly with an independent financial adviser will force you to review your pension planning on an ongoing basis and help you to make the right decisions at the right time. Another option could be a deferred annuity, where you earmark a portion of your pension fund to buy an annuity income that kicks in at a specific age in the future.

A slightly different approach would be to use some of your pension fund to buy an annuity income as soon as you retire, ensuring a guaranteed minimum level of income for life. The rest of your money can then be managed through a drawdown plan – and converted to income later on.

Flex first, fix later won’t be right for everyone. It still leaves you vulnerable to investment risk. You will need to manage your pension carefully, particularly as you get closer to the moment of purchasing an annuity. You’ll also be vulnerable to volatility in the annuity market. Also, people suffering from ill health or lifestyle problems likely to reduce their life expectancy may be better off buying an annuity straight away. Not least, they can access higher rates from annuity providers that don’t bank on paying out for as long as usual. None of these decisions are straightforward. Moving from the “accumulation” to the “decumulation” phase of pension planning really is a moment to consider getting good-quality financial advice.

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David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.