Drawdown
What is pension drawdown?
Drawdown lets you take money from your pension while leaving the rest invested. You can withdraw regular amounts, occasional lump sums, or a combination. The money you don’t take keeps growing (or shrinking) with the markets.
It’s the most flexible way to access a defined contribution pension.
How does drawdown work?
You move money from your pension pot into a drawdown account. When you do this:
- 25% is tax-free – you can take this as cash
- The rest stays invested – you withdraw from it as needed
- Withdrawals are taxed as income – added to your salary, State Pension, etc.
How much can you take?
As much or as little as you want. There’s no limit. But take too much and you could run out of money. Take too little and you might miss out on enjoying your retirement. Getting the balance right is the challenge.
What are the risks?
Your pension can go down as well as up. If markets fall and you’re still withdrawing, your pot shrinks faster. You could outlive your money. This is why some people buy an annuity with part of their pension—for guaranteed income.
Drawdown vs annuity
Drawdown keeps you invested and flexible, but with risk. An annuity gives guaranteed income for life, but less flexibility. Many people use a combination.
Key points
- Take money while staying invested – flexible access
- 25% tax-free, rest taxed as income
- No limit on withdrawals – but you can run out
- Investment risk remains – pot can go down