Pension Drawdown

Pension Drawdown, also known as Flexi-Access Drawdown, Income Drawdown or Capped Drawdown, is a method of using your pension pot to provide a regular retirement income whilst remaining invested.

Pension Drawdown has been around for many years and The Pension Drawdown Company has been specialising in it since 1999.

Pension Drawdown has become an increasingly used household term since the New Pension Freedoms of April 2015, which removed the limit on the amount of income individuals can take from their pension savings. The rules now allow individuals to decide when and how much of your their pension savings to take for themselves.

The options available

Under the new flexible rules you can mix and match any of the options below, using different parts of one pension pot or using separate or combined pots. Not all pension schemes and providers will offer every option - even if yours does, be sure to shop around.

  • Leave your pension pot untouched
  • Flexi-Access Drawdown - use your pot to provide a flexible retirement income
  • Use your pot to buy a guaranteed income for life - an annuity
  • Take small cash sums from your pension pot
  • Take your whole pot as cash
  • Mixing your options

Leave your pension pot untouched

You may be able to delay taking your pension until a later date. Your pot then continues to grow tax-free, potentially providing more income once you access it.

Flexi-Access Drawdown - use your pot to provide a flexible retirement income

Flexi-Access is the only drawdown option available for people who take their pension benefits for the first time after 6th April 2015. With this option you take up to 25% (a quarter) of your pension pot or of the amount you allocate for drawdown, as a "Pension Commencement Lump Sum" (PCLS - commonly referred to as "tax-free lump sum" or "tax-free cash"). You then re-invest the remaining funds to provide you with a regular taxable income.

You can stop, start and change the amount of income as you please, though this may require periodic adjustments depending on the performance of your investments. Unlike with a lifetime annuity your income isn't guaranteed for life - so you'll need to manage your investments carefully.

> Find out more on our Flexi-access drawdown page

Take small cash sums from your pension pot

You can use your existing pension pot to take cash as and when you need it and leave the rest untouched where it can continue to grow tax-free. This is known as UFPLS (Un-crystallised Pension Lump Sum) and for each cash withdrawal the first 25% (quarter) is tax-free and the rest counts as taxable income. There may be charges each time you make a cash withdrawal and/or limits on how many withdrawals you can make each year.

With “UFPLS, there are additional tax implications to consider. your pension pot isn't re-invested into new funds specifically chosen to pay you a regular income and it won't provide for a dependant after you die.

Take your whole pot as cash

You could close your pension pot and take the whole amount as cash in one go if you wish. The first 25% will be tax-free and the rest will be taxed at your highest tax rate - by adding it to the rest of your income.

There are many risks associated with cashing in your whole pot. For example:

  • A large tax bill resulting from taking all the money within a single tax year
  • Neither you, or any dependant will benefit from a regular income
  • Without careful planning, you could run out of money and have nothing to live on in retirement.

Trivial Commutation is a term which refers to the Small Pot legislation that allows you to cash in certain defined benefit pension pots. Under Small Pot legislation, if you are aged 55 or over you are allowed to cash in up to 3 pension pots each to the value of £10,000. Of each pot, 25% will be tax-free and the balance taxed at a rate dependent on your total taxable income.

Cashing in your pension pot will not give you a secure retirement income. We strongly recommend that you get financial advice before you commit.

Pension Drawdown Death Benefits

From the 6th April 2015, you have more choice as to how you want any remaining pension funds to be paid to beneficiaries after you die.

Any remaining pension funds on your death can be paid as a lump sum to anyone you wish or rather than being paid as a lump sum, the remaining value of your pension savings can be used to purchase an annuity that provides a guaranteed income for your spouse, civil partner or other financial dependant. Alternatively, your remaining pension savings could be paid into a flexi-access pension for any beneficiary that you nominate. This beneficiary doesn't have to be dependent on you; for example they could be an adult, child or grandchild.

The Tax treatment of your pension depends on whether you die before or after age 75:

When you die you can leave the value of your funds to whoever you choose. The taxation that will apply varies depending on whether this occurs before or after you are 75.

On death before age 75, there will usually be no income tax charge even if benefits are paid as a lump sum.

On death on or after age 75, where the payment is made directly to the beneficiary it will be taxable as pension income at the recipient’s tax rate.

Learning about your options all starts
with a free no obligation chat.

So if you would like to find out more or review your own position
please contact us by email or call us on

0800 03 04 008

Risk Warning exclamation mark icon

The value of investments and income from them may go down. You may not get back the original amount invested.

A pension is a long term investment, the fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of reliefs from taxation, are subject to change.

Taking withdrawals may erode the capital value of the fund, especially if investment returns are poor and a high level of income is being taken. This could result in a lower income when the annuity is eventually purchased.

Risk Warning exclamation mark icon

The value of investments and income from them may go down. You may not get back the original amount invested.

A pension is a long term investment, the fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of reliefs from taxation, are subject to change.

Taking withdrawals may erode the capital value of the fund, especially if investment returns are poor and a high level of income is being taken. This could result in a lower income when the annuity is eventually purchased.