What is pension drawdown & how does it work?

Pension drawdown also known as income drawdown or flexi-access drawdown - is when you leave your pension invested whilst taking an income from it, as and when you want. As your money stays invested it still has the potential to continue to grow, although of course this is never guaranteed. It also remains yours, and can be passed onto your loved ones when you die without inheritance tax applying. 

A quarter (25%) of your pension pot can usually be taken tax-free and any other withdrawals will be taxed as earnings whether you take them as regular income or as lump sums. It’s important to remember that the more money you take out the less money is left to provide for future income, so it requires you to carefully monitor and manage your investments.

Drawdown allows you to leave your money in your pension pot and take regular income or lump sums from it as and when you want. As money left in your pension pot remains invested, it gives your pension the chance to continue to grow, but it could go down in value too.

Find out more about pension drawdown or how it works.

Money cannot normally be withdrawn from a pension until the age of 55 (57 from 2028). However, once you reach 55 (57 from 2028), you’ll usually be able to access your pension and start taking an income from it as and when you want.

You can leave your money in your pension pot and withdraw as much or as little as you want and when you need, until your money runs out or you choose another option. The more money you take out each time the less money is left to provide future income.

Find out more about how much you can take from a pension.

You can leave your money in your pension pot and take lump sums from it as and when you need. You decide when and how much to take out. Any money left in your pension pot remains invested which means it still has the potential to grow, although of course this is never guaranteed.  

A quarter (25%) of your pension pot can usually be taken tax-free and any other withdrawals will be taxed as earnings whether you take them as lump sums or regular income. Or you can make lump sum withdrawals, with 25% of each withdrawal being tax free, up to your remaining lump sum allowance (£268,275) and 75% being taxed as earnings (this is called an Uncrystallised Fund Pension Lump Sum, or UFPLS for short).

Yes, both you, your employer or anybody else can continue saving into your pension pot.

However, once you have taken taxable money out of your pension pot (i.e. more than the tax-free part), the amount you can pay in and receive tax relief on (your annual allowance) may be reduced. This is known as the Money Purchase Annual Allowance (MPAA).

You may also face restrictions on carrying forward unused allowances from previous years.

Any contributions you make after the age of 75 aren't eligible for tax relief.

How long your pension income will last will depend on how much you've saved over the course of your life, how much you withdraw each time you take income, how your investments perform over time and how long you need the money for (which could be 20 years or more).

Our retirement calculator can show if you’re saving enough for the lifestyle you want, and how making changes – such as saving more and retiring sooner or later – could impact your projected income. You can also use the ONS interactive calculator  to find out the average life expectancy for your age.

Our pension drawdown calculator can help you understand how much income you could take and how long your pension might last if you opt for a flexible retirement income (drawdown).