Understanding Pension Drawdown
Pension drawdown (also called flexi-access drawdown) allows you to take income from your pension pot while keeping the remainder invested. Since pension freedoms were introduced in April 2015, drawdown has become the most popular way to access defined contribution pensions in the UK.
The 25% Tax-Free Lump Sum
You can take up to 25% of your pension pot as a tax-free lump sum. This can be taken all at once or in stages (known as uncrystallised funds pension lump sums or UFPLS). The maximum tax-free amount is capped at £268,275 (the lump sum allowance). Any drawdown income beyond this is taxed as earned income.
Sustainable Withdrawal Rates
The key risk with drawdown is running out of money. Withdrawing too much too quickly can deplete your pot. A common guideline is the 4% rule — withdrawing 4% of your initial pot and adjusting for inflation. However, actual sustainability depends on investment returns, inflation, and how long you live. Professional advice is strongly recommended.
Frequently Asked Questions
How is drawdown income taxed?â–¾
Drawdown income is taxed as earned income. It is added to your other income for the tax year and taxed at your marginal rate. This means careful planning of the amount and timing of withdrawals can minimise your tax bill — for example, keeping total income below the higher-rate threshold of £50,270 avoids 40% tax.
Can I change my withdrawal amount?â–¾
Yes. One of the main advantages of drawdown over an annuity is flexibility. You can increase, decrease, or stop withdrawals at any time. This is useful for adapting to changing circumstances, such as receiving State Pension or having years with other income sources.
What happens to my drawdown pension when I die?â–¾
If you die before age 75, beneficiaries can inherit the remaining pension pot tax-free. If you die after 75, beneficiaries pay income tax on withdrawals at their marginal rate. Pensions are generally outside your estate for inheritance tax purposes, making them a powerful estate planning tool.
Calclypso Editorial Team
Drawdown calculations use 2025-26 income tax bands. Last updated: April 2026. This calculator provides estimates only. Seek professional financial advice before making drawdown decisions.