Flexible retirement income with complete control — take what you need, when you need it.
Last updated 24 September 2026
Pension drawdown is a flexible way of taking income from your pension pot while keeping the rest invested. Unlike an annuity, you maintain control over your investments and can vary your withdrawals to suit your needs. You can usually take up to 25% of your pot tax-free, then draw taxable income from the remaining 75% as and when you want.
Capital at risk. The value of investments can fall as well as rise. You may get back less than you invest.
Pension drawdown, also known as flexi-access drawdown, allows you to access your pension savings flexibly while keeping your money invested. Unlike an annuity, which converts your pension into a guaranteed income for life, drawdown gives you complete control over how much you withdraw and when.
Your pension pot remains invested in the stock market or other assets, giving it the potential to grow over time. This means your retirement income isn't fixed — it can increase if your investments perform well, though it can also fall if markets decline.
Important considerations: Income drawdown involves keeping your pension invested, which means it can go up or down in value. You'll need to carefully manage your withdrawals to ensure your pension lasts throughout retirement. Poor investment performance or excessive withdrawals could deplete your fund prematurely. Consider taking regulated financial advice before making drawdown decisions.
One of the biggest challenges with drawdown is deciding how much to withdraw each year without running out of money. This is where the concept of "sustainable withdrawal rates" becomes crucial.
The '4% rule' comes from a 1994 study by US financial planner William Bengen. He found that taking 4% of a pot in the first year, then raising the amount each year with inflation, would have lasted at least 30 years in every period of US market history he tested. For a £250,000 pot that means starting at £10,000 a year.
The research used US shares and bonds and ignored platform and fund charges, so it does not carry straight over to a UK drawdown pot. A commonly quoted starting point is 3–4% a year; no rate is guaranteed. Try different withdrawal rates in the drawdown calculator.
Source: Bengen, W. P. (1994), 'Determining Withdrawal Rates Using Historical Data', Journal of Financial Planning.
Some UK retirees use a flexible approach, adjusting withdrawals based on investment performance and personal circumstances. In good years, you might withdraw more; in poor years, you might reduce spending. This dynamic strategy can help your pension last longer but requires discipline and regular review.
Source: GOV.UK: Pension schemes rates and allowances, 2026/27 tax year.
The first time you take taxable money from a pension, your provider often has no current tax code for you. HMRC's rules then tell it to use the emergency tax code on a 'Month 1' basis. That treats the payment as if you will be paid the same amount every month for the rest of the tax year, so a one-off withdrawal can have much more tax taken off than you actually owe.
A P45 from the current tax year (for example from a job you have left) can help: given to the provider before the first payment, it lets the provider use that tax code instead. Some people take a small first payment so that HMRC sends the provider a tax code before a larger withdrawal. Any taxable payment from flexi-access drawdown or an uncrystallised funds pension lump sum (UFPLS), however small, triggers the money purchase annual allowance (£10,000 a year), which matters if you are still paying into a pension.
| Your situation | What to do |
|---|---|
| You took some of your pot, it is not empty, and you will not take any more this tax year | Form P55 |
| You emptied your pot and have other income, such as a job or another pension | Form P53Z |
| You emptied your pot, have stopped work and have no other income | Form P50Z |
| You are taking regular payments from the pot | Usually no form: HMRC sends the provider a corrected tax code and later payments put it right. Anything still overpaid at the end of the tax year is dealt with after 5 April. |
Source: HMRC: PAYE manual PAYE94055 (flexibly accessed pensions) and the GOV.UK guidance for each form.
Finance Act 2026 changes how pensions are treated when someone dies. If the pension holder dies before 6 April 2027, the current rules apply, even if the money is paid out after that date. For deaths on or after 6 April 2027, most unused pension funds and pension death benefits will count towards the value of the estate for inheritance tax.
GOV.UK says most estates will continue to have no inheritance tax to pay after 6 April 2027. Whether an estate does depends on its total value, the allowances that apply and who inherits.
Checked 24 September 2026. Sources: GOV.UK: Inheritance Tax on unused pension funds and death benefits; GOV.UK: Technical note, Inheritance Tax on pensions; MoneyHelper: What happens to my pension when I die?.
While income drawdown offers flexibility, it's important to understand the risks involved:
Pension drawdown is a flexible way of taking income from your pension pot while keeping the rest invested. Unlike an annuity, you keep control over your investments and can vary your withdrawals. You can usually take up to 25% of your pot tax-free, then draw taxable income from the remaining 75% as and when you want.
There is no limit: you can take your whole pension as a lump sum if you wish. Usually only 25% is tax-free (up to £268,275 under the lump sum allowance) and the rest is taxed as income. A commonly quoted starting point is 3–4% of the pot a year, but no withdrawal rate is guaranteed to last: it depends on investment returns, charges, inflation and how long you live.
Neither is better in general. Drawdown offers flexibility and potential for investment growth, but carries the risk of running out of money. Annuities provide a guaranteed income, usually for life, but offer no flexibility once bought. Some people combine both, using an annuity for essential spending and drawdown for the rest.
Any money left can usually be passed to the people you nominate. If you die before 75, they usually pay no income tax on it; if you die at 75 or over, they pay income tax at their own rate on what they take out. For deaths on or after 6 April 2027, most unused pension funds also count towards the estate for inheritance tax, although pensions left to a spouse, civil partner or charity stay exempt.
The '4% rule' comes from a 1994 US study by William Bengen, which found that taking 4% of a pot in year one and then raising it with inflation would have lasted at least 30 years in every period of US market history he tested. It used US markets and ignored charges, so it does not carry straight over to a UK pot. A commonly quoted starting point is 3–4% a year; no rate is guaranteed.
Your provider probably used an emergency tax code on a 'Month 1' basis, which treats a one-off withdrawal as if you will receive it every month. You can reclaim the overpayment: form P55 if your pot is not empty, P53Z if you emptied it and have other income, or P50Z if you emptied it and have stopped work with no other income. If you take regular payments, HMRC usually corrects it through your tax code.