My understanding of the way they work is you get an annuity of the lump sum of a certain percentage. If you have £100k and get 5% , you will get £5k, if you have £250k and get 5% you'll get £12.5k a year, though rates are lower at the moment so you will get less. This may be over simplifying things, and may be totally wrong, but I would be looking at £500k for a decent pension.
Annuity rates are very low and unlikely to be the best option.
If you select annual increases, they will be very low.
If you are able to get inflation linking, they will be extraordinarily low.
You can use Income Drawdown or Partial Encashment, in both cases leaving the remainder of your fund to continue growing.
It's my opinion that growth is very unlikely to be less than inflation, and quite likely to be higher. (Though perhaps I am mistaken.)
This means that even if you took (for example) 4% of your fund value this year, your fund is likely to be worth more next year.
And so, next year, if you took another 4% of the new value, it would be a greater amount.
If your fund happened to grow, say, by 10%, the increase would be noticeable.
From time to time there will be a bad year, and the fund will shrink rather than growing. Taking out a fixed sum in such a year will decrease its value by a greater percentage. So it is a good idea to keep a cash buffer to tide you over a bad year.
As you grow older, your life expectancy sadly reduces, so you can reasonably increase the percentage you take.
For example, I know a person aged 75 who expects to live about 15 years, so she divided her pension fund by 15 years, and intends to take 6%. There is a good chance that the fund will not be exhausted by the time she pegs out so there will be something to leave to her grandkids. If the fund happens to grow by more than 6%, she can withdraw more, or leave more.
If she had taken early retirement at 55, she would have had to start with a smaller percentage.
You can get a calculator that says how long your fund will last, assuming x% growth, depending on fund value, amount taken, and the increase in payments you assume to match inflation.
Annuities make a similar calculation, and they work on an estimate of how long the average annuitant will live. Otherwise, you yourself carry the risk of living too long and running out, or dying too soon and not getting the benefit of your investment.
Companies that sell annuities make a good profit.
A flat-rate annuity will lose a lot of its spending power after ten or fifteen years of inflation.
For example goods costing £1000 in 2005 cost £1527 in 2020
https://www.bankofengland.co.uk/monetary-policy/inflation/inflation-calculator
