What is pension drawdown?
Pension drawdown is a way of using your pension pot to provide you with a regular retirement income by reinvesting it in funds specifically designed and managed for this purpose. The income you get will vary depending on the fund’s performance. It isn’t guaranteed for life.
How pension drawdown works
You can normally choose to take up to 25% (a quarter) of your pension pot as a tax-free lump sum. Some older pensions might let you take more than 25% so it’s worth checking with your pension provider.
You then move the rest into one or more funds within a Flexible Income Product that allow you to take an income at times to suit you.
Some people use it to take a regular income. The income you receive might be adjusted periodically depending on the performance of your investments.
There are two main types of drawdown product:
Pension drawdown – introduced from April 2015, where there is no limit on how much income you can choose to take from your drawdown funds.
Capped drawdown – only available before 6 April 2015 and has limits on the income you can take out; if you are already in capped drawdown there are new rules about tax relief on future pension savings if you exceed your income cap
Pension drawdown – find out more
Read our guide below to find out:
- how pension drawdown works
- what you need to think about when deciding whether it’s right for you – including the tax implications and the effect on tax relief on future pension savings once you start taking an income
- where you can get help or advice to help you decide if it’s right for you.
Capped drawdown – rules about pension tax relief
If you have already moved all or part of your pension pot into capped drawdown, read our guide to understand new rules from April 2015 that reduce how much tax relief you can get on future defined contribution pension savings if you exceed your income cap.
If you exceed the cap the rules for pension drawdown will apply going forward.
Deciding whether or not pension drawdown is the right option for you is complex. We recommend you get financial advice before committing to this.
Your other retirement income options
Income drawdown is just one of several options available to you for taking your pension.
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