What is income drawdown?
Take money from your pension as and when you want it. It’s a flexible way to take an income from the minimum pension age – currently 55 – and keeps you in control.
Flexible options
Take money as and when you need it
Up to 25% tax free
You can take up to 25% of your pension as tax-free cash but any funds in drawdown will be taxable
Change your mind
Take a different retirement option or combine this with another option at any time
The value of your pension can go down as well as up and you may get back less than has been paid in. All references to taxation are based on our understanding of tax rules and HM Revenue & Customers (HMRC) practice. Tax rules are subject to change and depend on your individual circumstances.
How it works
Discover how income drawdown works to help you understand if it’s right for you – or see how it could work for you with our Retirement Planner.
Using your tax-free allowance
You’re entitled to take up to 25% of your pension pot as a tax-free lump sum. You have the flexibility to take this in one withdrawal, or spread it across multiple withdrawals. With each tax-free withdrawal, three times the amount taken tax-free is moved into a drawdown pot and withdrawals from there will be taxable.
Accessing more of your pension pot
You can continue to make single withdrawals as and when you like, providing you have the funds available. Or you can set up a regular withdrawal, with the flexibility to change how much and how often you take money.
Your withdrawals will be treated as income, and taxed according to your individual circumstances.
Regularly review your remaining pension
The rest of your pension will stay invested. The value of your pension can go down as well as up and you may get back less than has been paid in.
You can review your investment options at any time to make sure you’re happy with the level of risk involved.
Before taking income drawdown
There are some things you need to be aware of before choosing to take your pension in several lump sums or as regular withdrawals.
- You should consider all your retirement options before going ahead with income drawdown and shop around to make sure you get the best deal as other providers might offer products which are more suitable to your personal circumstances
- Your future income isn’t guaranteed and it may need to last a lifetime. The more money you take, the faster your pension will be depleted and the more likely it is to run out
- If you’re still working, your salary plus pension withdrawal may push you into a higher tax band than if you just took the 25% tax-free lump-sum from your pension on its own
- Money you get, or may be able to take, from your pension is looked at when working out your entitlement to any state benefits. Taking any withdrawals, or going into drawdown without taking withdrawals, may affect the benefits you would receive
- If you take money from your pension you can still pay into your pension in the future. You can take up to 25% tax free but once you’ve withdrawn any taxable cash, you will be subject to tax charges if you contribute more than £4,000 in total to any defined contribution pensions in a tax year. This is known as money purchase annual allowance (MPAA). Read more about tax implications
- If the total money you take out across all your pensions exceeds the lifetime allowance, you’ll pay a lifetime allowance charge on the excess. The lifetime allowance for the 2022/23 tax year is £1,073,100
- If you’re planning to put the money you take out into savings or other types of investment, you may want to consider how those types of investments are treated for tax purposes.
Other ways to use your money
If you’re not sure if income drawdown is right for you, take a look at other options for taking money from your pension once you’re retired. You can see more and compare your options here.
Pension annuity
Know exactly how much money you’ll get with our annuity that gives you a guaranteed income for the rest of your life.
Mix and match your retirement options
Choosing a few retirement options (rather than just one) could help you get the retirement lifestyle you’re after.
Taking all your pension in cash
See the impact of withdrawing your pension money as one lump sum – and what you can do instead.
Leave your money where it is for now
Not touching your money right away could make a difference to the size of your pension pot.
Using your pension
See how you can start taking your money flexibly after you turn 55 and how doing this could affect your future.
Retirement help and support
Sometimes changes in your life leave you unsure about what to do next. So we’re here to help you understand your options, should the unexpected happen.
