What is Pension Drawdown?

When you are ready to access your pension there are a number of ways you can turn that pile of savings into a retirement income, one option is pension drawdown.

Ruth Jackson-Kirby Published on 24 March 2021. Last updated on 25 March 2021.
What is Pension Drawdown?

Pension drawdown, or income drawdown as it is also known, is a way of extracting an income from your pension while it remains invested so your pot can continue to grow. So, rather than taking your pension savings as cash or using them to buy an annuity you leave your money invested and take a regular income from it instead.

Because you are leaving your money invested in the stock market the hope is that it will continue to grow, but the risk is it could fall in value too.

How does a pension drawdown plan work?

Income drawdown used to have strict rules, limiting the amount you could withdraw, unless you could demonstrate a healthy retirement income from alternative sources. Now, following the introduction of pension freedom rules in April 2015, you can draw down as much or as little from your drawdown plan as suits you.

The first 25% of your pension fund can be taken as a tax-free lump sum.

After that you have the option to:

  • Withdraw all your pension pot in one lump sum.
  • Take regular monthly or annual payments as an income while leaving the rest of your pot invested (less binding than an annuity).
  • Leave your pot invested and take lump sums out as and when you need to.
  • Leave your fund invested and don’t make any withdrawals.

How to go into drawdown

The method of going into income drawdown will depend on the type of pension you have. If you have a workplace pension your scheme may not allow drawdown, in which case you would need to transfer your pension to a provider that does allow drawdown. Think carefully before you do this and check you won’t lose any valuable benefits if you leave. Find out more in our guide to pension transfers.

If you have a self-invested personal pension (SIPP) or a workplace pension provider who offers drawdown then you need to contact them and ask to move into drawdown.

Pros and cons of pension drawdown

Drawdown can be a great choice if you want your pot to continue to grow in retirement, however, it has its negatives too.


  • Your money remains invested so, depending on stock market performance, it could continue to grow in value.
  • You can take money out of your pension whenever you want.
  • You can vary the amount you take from your pension depending on your needs at the time.
  • Drawdown can help with tax planning – you can structure your income withdrawals in the most tax-efficient way given your own personal tax situation.


  • Your pension is still invested in the stock market. Poor performance could erode the value of your pot.
  • You can’t guarantee your pension will last your entire lifetime.
  • Your income isn’t guaranteed, unlike an annuity.
  • You need to take responsibility for managing your pension and where it is invested, unless you pay an IFA to do it on your behalf.

What happens to my pension drawdown if I die?

Your remaining pension can be inherited by your beneficiaries if you die. They have the option of whether to take it as a lump sum or continue to take an income from your drawdown plan.

How it is treated by the taxman will depend on your age when you die.

  • Under 75 – Your pension can be inherited tax-free. Your beneficiaries have the option of taking a regular income from your drawdown plan or taking the whole pot as a lump sum.
  • 75 or over – Your beneficiaries will pay tax on your pension at their personal rate of income tax.

Beware pension scams

If you are considering drawdown it is vital you are aware of pension scams. If you are cold-called or contacted out of the blue by a firm that is encouraging you to move your pension savings into high-return investments you should report this. Read our guide to pension scams for more information.

» MORE: How to protect your savings from pension scams

Where can I go for pension advice?

Everyone aged over 50 with a pension is entitled to a free pension consultation with the government’s Pension Wise service. This is, however, only guidance, for advice that is tailored to your individual circumstances you will need to consult an independent financial adviser, although there will be a charge for this. To find an IFA talk to friends and family for recommendations or try the Personal Finance Society or sites such as Unbiased.

» MORE: How to get pension advice

Source: Getty Images

About the author:

Ruth is a freelance journalist with 15 years of experience writing for national newspapers, magazines and websites. Specialising in savings, investments, pensions and property. Read more

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