Take money from your pension when you need it: pension drawdown explained

Pension drawdown is a way to take money from a defined contribution pension.  

It usually lets you: 

• take up to 25% from your pension as a tax-free lump sum at any time from age 55 (rising to 57 from April 2028) 
• leave the rest invested so it can benefit from investment growth 
• take your money when and how you choose, including as: 
  • regular income 
  • lump sums as and when you need them. 

As your pension remains invested, its value can rise and fall until you take the money. This means your retirement income is not guaranteed. 

To get a set, guaranteed income, you could consider buying an annuity with some or all of the remaining money – or choose this option for a different pension if you have more than one. You can see all your options in our guide What can I do with my pension pot?

Whichever option you choose, you do not have to take the full 25% as a tax-free lump sum. The more you take, the less you’ll have to give you an income later.

Pension drawdown has different options, so you'll need to make certain decisions when setting it up.

When you’re ready, you can either choose to move your pension into drawdown: 

• in one go 
• gradually over time – often called phased or partial drawdown.  

The earliest you can usually move your pension into drawdown is age 55 (rising to 57 from April 2028), unless: 

• you need to retire early due to poor health 
• your provider lists an earlier protected age. 

But always check if you'll miss out on certain benefits if you take money before your scheme is designed to pay out, called the normal pension age. For example, you might lose a bonus payment. 

For more information, see our guide When can I take money from my pension?

You can usually take up to 25% from each of your pensions without paying Income Tax, as long as:  

• the money is taken as one or more lump sums and 
• the total tax-free cash from all your pensions is not higher than the lump sum allowance (LSA) – £268,275 for most people. 

This means you can move your full pension into drawdown without taking any as a tax-free lump sum – or any amount up to 25% of its value. The more you take upfront, the less you’ll have to give you an income later. 

If you put your pension into drawdown, you’ll usually be asked how you’d like it to be invested. 

This normally means you can: 

• ask your provider to choose for you based on your preferences – these ready-made investment options are called investment pathways
  
• choose your own investment options 
• pay a financial adviser to manage your pension investments for you.

For more information, see our guide about Investing in retirement.

After you’ve put your pension into drawdown, you can still change your mind and choose another way to take your pension money.  

For example, you could: 

• leave your pension in drawdown and retire at a later date  
• convert some or all of your pension drawdown pot into guaranteed income – for life or for a fixed period 
• take all your pension in one payment. 

Putting your pension into drawdown lets you access your money in a flexible way.  

It also means you can spread the amounts you take across multiple tax years, so your total income doesn’t push you into a higher tax bracket. 

But there are some potential downsides to consider too. 

While your pension is left invested, its value can rise and fall until you take the money. This means the amount you can take out might be higher or lower than expected. 

How much your pension is worth depends on how much is paid in, how well the investments perform and the charges your provider takes off.

You can usually choose how often to access your pension and how much to take each time. This means you need to plan carefully to reduce the risk of running out of money.  

For example, your money might not last if you: 

• live longer than you expect – many underestimate the length of their retirement 
• take out too much in the early years 
• do not adjust the amounts you take if your invested pension grows less than you’ve planned for.  

You can use our calculator to see how long a regular drawdown or flexible retirement income might last you. 

Many pension providers manage and choose the investments for you, typically putting your money into their default fund.  

This usually means your money is moved to more stable investments the closer you get to your scheme’s ‘normal pension age’ – which is often the same as your State Pension ageOpens in a new window

This happens as your provider assumes you’ll take all your pension money at your normal pension age. For example, you might take a cash lump sum and use the rest to get an income for life (an annuity). 

If you leave your pension invested past your normal pension age, you might miss out on investment growth by keeping your money in your provider’s default fund.

This is because your money will continue to be put in lower-risk investments, which might have a lower return. For more information, see our guide How to choose your own pension investment options.

When you pay into a pension, the government usually adds a top-up payment called tax relief. This is the money you’d normally pay in Income Tax. 

You can usually get tax relief on all your pension contributions up to the annual allowance. For most people, this means:  

• your contributions must be less than (or equal to) the amount you earn, and  
• contributions from you and your employer must be less than £60,000.  

But if you take taxable money from your defined contribution pension (like taking money after your pension has been put into drawdown), the £60,000 limit reduces to £10,000. This is called the money purchase annual allowance (MPAA).  

If you’ve taken a tax-free lump sum, you might also have to pay extra tax if you put some or all of it into a different pension scheme.  

This is because pension recycling rulesOpens in a new window stop you from taking tax-free cash out of a pension and then paying it back in, so you get more tax relief. If you do this, you’ll usually have to pay tax worth 55% of the tax-free lump sum you received.

If taking money from your pension increases your income or savings, this might affect any benefits you’re entitled to claim. 

You can:

• use our Benefits calculator to check what you’re entitled to and how it might change if your income or savings increased
• find free and confidential benefits advice on Advicelocal.

Any money held in your pension usually cannot be claimed by anyone you owe money to, even if you’re declared bankrupt or have a formal debt repayment plan. 

But if you take money out of your pension, you might be told to use it to make regular repayments or the whole amount could be claimed.  

Before taking pension money, you can talk to a free debt adviser to understand your options. For more information, see our guide Can I use my pension to pay off debt?

If you die before age 75, your pension can usually be inherited tax-free as long as: 

• the money is paid to your nominated beneficiaries within two years of your pension provider being aware of your death 
• you did not transfer your pension in the two years before you died if you were in ill-health – this might be seen as a transfer of value and subject to Inheritance Tax 
• the total amount inherited from all your pensions and taken as lump sums is not higher than the lump sum and death benefit allowance (LSDBA). 

The LSDBA is £1,073,100 for most people and counts tax-free lump sums taken from your pension before and after you die. This means your limit might be lower if you’ve already taken tax-free money. Your beneficiaries will usually pay Income Tax on any amounts above the LSDBA.  

In all other cases, including if you die after age 75, your pension usually cannot be inherited tax-free. The inherited amount is normally added to your beneficiary’s other income to calculate how much Income Tax is due.  

Putting your pension into drawdown is just one way to take money from your defined contribution pension.  

You can also choose to: 

• take your pension in one or more lump sums, with 25% of each amount paid tax-free 
• take some tax-free cash (up to 25%) and convert the rest into guaranteed income by buying an annuity. 

It’s worth asking your pension provider if you have any special features before comparing your options. For example, your pension might offer guaranteed annuity rates that would give you a higher guaranteed income than you could buy on the open market. 

To help you decide, we offer free and impartial Pension Wise guidance appointments to explain your pension options.

If pension drawdown is right for you, there are some steps to take. 

You do not have to stay with your existing pension provider – they might not offer pension drawdown or another provider might offer a better deal. 

For example, some providers might: 

• have minimum amounts you must put into drawdown 
• not offer the investment options you’d like or a small range 
• charge higher fees  
• not let you take income how you’d like, such as not allowing lump sums.  

Comparison sites for pension providers do not exist, so you’ll usually either need to: 

• manually search for pension providers that allow multiple lump sums 
• pay a regulated financial adviser to recommend a provider and product for you. 

For help comparing providers yourself, you can: 

• see our guide about shopping around for pension income products 
• use our Investment pathways comparison tool to find products that offer ready-made investment options.  

If a different pension provider offers a better deal, you could consider moving your pension to them. For more information, see our guide about Transferring your defined contribution pension.

Do not access your pension or transfer any money to a pension provider because of a cold call, visit, email or text. It’s likely a scam designed to steal your money.  

You might lose all your retirement savings and have to pay an expensive tax bill. For more information, see our guide How to spot a pension scam.

All pension drawdown income is counted when calculating how much Income Tax you’ll pay each tax year (6 April to 5 April), apart from: 

• any upfront lump sum you take – worth up to 25% of your pension 
• 25% of other lump sums you take later – as long as the total tax-free amount is not higher than: 
  • 25% of that pension and 
  • the lump sum allowance – this is £268,275 for most. 

This means you might be able to spread how much you take across different tax years to avoid moving into a higher Income Tax band.  

You can see the Income Tax bandsOpens in a new window and Scottish Income Tax bandsOpens in a new window on GOV.UK.  

Example: If your total income from 6 April last year to 1 April this year was £50,000, taking £5,000 from your pension on 2 April would push you into a higher tax band. But wait until a new tax year starts on 6 April and you’d stay in a lower tax band.   

Which? has a Pension tax calculatorOpens in a new window that can help you plan your withdrawals if you’re planning on taking lump sums.  

If you take a lump sum from your pension, your provider might use a temporary or emergency tax code.  

This usually means you’re taxed as if you’ll receive that lump sum every month, so you might pay more tax than you should.  

If you think you’ve overpaid tax, you can check how to claim a tax refundOpens in a new window on GOV.UK. HMRC might also pay it back to you automatically at the end of the tax year.

As your invested pension can rise and fall in value until you take the money, it’s important to regularly check how well it’s performing. 

If your pension grows at a slower rate than expected, you might want to consider: 

• adjusting the amount you’re planning to take each time 
• choosing a different way of taking your money 
• changing how your pension is invested. 

It’s also worth comparing pension providers at least once a year, to see if you might be better off transferring your pension elsewhere. 

If you have any questions about your pension, our pension specialists can help – it doesn’t matter how old you are.