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What is pension drawdown and how does it work?

Written by Retirement Line Updated: 24th June 2024

Your guide to income drawdown

Income drawdown - also known as ‘flexi-access drawdown’, ‘drawdown pension’ or just ‘drawdown’ - is one way to take an income if you have money saved in a defined contribution pension scheme. These are also known as ‘money purchase’ schemes.

With drawdown, you invest your pension pot and take money from it as regular income or ad-hoc payments. How much you can take over your retirement will depend on the size of your fund now, and how well your investment performs in the future. 

Drawdown may appeal if you want the flexibility it offers. But on the other hand, your income isn’t guaranteed as the value of your pension savings can go down as well as up. An alternative is an annuity, which carries no investment risk and provides the security of guaranteed income for life or a fixed term of your choice.

Considering your pension income options?

Ask us for a free quotation to confirm how much guaranteed income you could get from an annuity. This will help you make a more informed decision between an annuity, income drawdown and other options. 

Speak to our Annuity Specialists today on 0800 652 1316 or request a free call back at a time that suits you. Alternatively, use our free annuity calculators for an indication of your potential guaranteed annuity income.

On this page:

  • What is pension drawdown?

  • Alternatives to pension drawdown.

  • Can I put money from a defined benefit pension into drawdown?

  • How do you take income with drawdown?

  • Monitoring your drawdown plan.

  • How does tax work with income drawdown?

  • How will my fund be invested with a drawdown pension?

  • Pension drawdown and state benefits.

  • What happens to my drawdown pension fund when I die?

  • Do drawdown providers charge fees?

  • How do I choose the best drawdown pension?

  • When is drawdown a good option?

  • What are the pros and cons of drawdown?

  • Beware of pension scams.

  • Help to make the right decision about drawdown.

What is pension drawdown?

Pension drawdown is a way of taking an income from money you have saved into one or more defined contribution pension schemes. Also known as ‘money purchase’ schemes, these can be:

  • Workplace pension schemes where you and your employer have made contributions.

  • Personal pensions you have set up yourself, such as a stakeholder pension or SIPP (self-invested personal pension).

You can take drawdown and other income options from the age of 55 (changing to age 57 from April 2028). This is known as the ‘normal minimum pension age’. However, if you wish, you can wait and defer taking an income until later.

With flexi-access drawdown, your pension fund remains invested and you decide when to take money from it, as regular income or ad hoc payments. This means that your income is not guaranteed and there is a possibility that you will run out of money.

On the other hand, your pension savings could grow if your investment performs well, and if you do not take excessive withdrawals. 

Alternatives to pension drawdown

Flexi-access drawdown isn’t the only way to take an income from your pension savings. There are alternatives that may better suit your circumstances and needs.

For example, an annuity pays you a guaranteed income for life or a fixed term and is unaffected by investment performance. If you take a lifetime annuity, you will continue to receive income even if you live a very long time, so there is no risk of running out of money. You can also include a beneficiary, such as your spouse or partner, in a joint life annuity where their income is guaranteed until they die.

In fact, you don’t have to choose just one retirement income option. You can, for example, use some of your pension pot to buy an annuity for guaranteed income, and the rest for flexibility with a drawdown pension arrangement.

Can I put money from a defined benefit pension into income drawdown?

Typically, drawdown is something to consider if you have money in a defined contribution pension scheme. But what if you are a member of a defined benefit scheme?

It may be possible to transfer money from a defined benefit (final salary) workplace pension into a defined contribution scheme, and then into flexi-access drawdown – but it is a big decision that can have serious implications.

Staying with your defined benefit scheme when you reach your chosen retirement age has important potential advantages over drawdown. For example, you would typically receive a regular, guaranteed and increasing income for life. The income won’t be affected by stock market performance, so it won’t fall if markets perform badly. 

It's crucial to understand the potentially unwelcome consequences of switching from a defined benefit scheme to income drawdown. We recommend you take advice from a regulated adviser who is an expert in these transfers. In some instances, advice is mandatory.

How do you take income with drawdown?

You are able to take money under income drawdown in a number of ways:

  • Set up a regular income, with flexibility to change the payments whenever you wish.

  • Take ad hoc withdrawals as and when you need them.

  • Choose to take no money until later on.

Your invested fund will hopefully grow through good investment performance. If your fund performs well, the investment growth could even replace the money you take as income.

For example, if you take 4% of your fund each year as income and the fund achieves a 5% annual growth, your fund will grow despite you taking an income. This assumes that annual charges will be less than 1% per year. 

However, if your fund performs badly, it could go down in value or not grow as much as you expected. If you take out more than your fund grows each year, you will start to outstrip your fund and will eventually run out of money.

Monitoring your drawdown plan

With drawdown, it’s important to regularly monitor your fund’s investment performance and how much you withdraw. If you don’t, you could find that you run out of money sooner than you anticipated.

You may also wish to think about any changes to your attitude to risk. If you become more risk-averse over time, then you might want to move to lower-risk funds within your drawdown plan. You can instead avoid investment risk altogether by moving your money from drawdown to an annuity.

Also, if your health or the health of a nominated beneficiary worsens, you may become eligible for an enhanced annuity. These pay more income on account of poor health, so an annuity could become especially attractive in these circumstances.

How does tax work with income drawdown?

Taxation is an important aspect of choosing a pension income option and deciding how much income to take. It is therefore vital that you know how pension drawdown is taxed before making a decision.

Taking up to 25% tax-free from your pension savings

Like annuities and other retirement options, with drawdown you can usually take 25% of your pension savings tax-free as a lump sum. This is known as your pension commencement lump sum (PCLS).

If you take all your 25% allowance in one go, you would be able to invest the remaining 75% with your drawdown provider. Any income you take from that point would be taxable at your income tax rate in the year it is taken.

You don’t have to take your 25% tax-free allowance all at once and can instead spread it across several withdrawals. One way is ‘phased drawdown’ where you move your pension pot into drawdown gradually. Each time you take a tax-free amount, you also move money into drawdown until you have taken all your tax-free allowance.

This phased approach has the potential advantage of leaving your pension savings invested in the market for longer, giving it more of an opportunity to grow and therefore, hopefully, produce even more tax-free cash. However, remember that investments can go down as well as up.

Paying income tax on your drawdown withdrawals

The amount of tax you pay on withdrawals after using your 25% tax-free allowance depends on your tax rate and your taxable income each year. Your taxable income may also include things like State Pension, some state benefits, income from other pensions, earnings from employment, and so on.

Taking income from flexi-access drawdown potentially creates the possibility of pushing you up into a higher rate tax band. You may be able to avoid this by limiting your cash withdrawals in a tax year.

Lump Sum Allowance (LSA) and Lump Sum and Death Benefit Allowance (LSDBA)

The lifetime allowance was abolished in April 2024. At this time, new allowances that limit tax-free lump sums paid from registered pension schemes came into place, including the Lump Sum Allowance (LSA) and the Lump Sum and Death Benefit Allowance (LSDBA):

  • The LSA is the maximum you can take from all your pension schemes as tax-free cash. Usually, your LSA is £268,275, but this may be higher in some circumstances.

  • The LSDBA covers certain lump sums paid on the person’s death, if that is before age 75. The standard LSDBA is £1,073,100 and lump sums above this paid to beneficiaries will typically be subject to income tax at their marginal tax rate. Benefits paid after age 75 are usually taxable regardless of the value.

  • If you accessed any pension funds before April 2024, your LSA and LSDBA may  be reduced accordingly. 

If you have pension savings at a level where these allowances may come into play, you may wish to take professional taxation advice. In any case, taxation matters can be complex, so if you are considering income drawdown, you may benefit from seeking professional advice. Retirement Line are not tax experts, but we can refer you to specialists in this area.

How will my fund be invested with a drawdown pension?

You will need to think about how you want your money invested if you move your pension pot into income drawdown. Your financial adviser or drawdown provider will ask about your attitude to risk and give you appropriate investment options. 

You might choose a drawdown plan with ready-made ‘investment pathways’ that simplify your decision-making. Alternatively, you may prefer a drawdown plan that lets you choose individual funds or even specific shares, personalising the way your pension savings are invested. For example, some plans may let you choose ESG funds where environmental, social and governance factors are integral to the investment process. 

Choosing the right investment option is about balancing your attitude to risk and when you would like to make your income withdrawals. You can pay a financial adviser to help you, and you can review your investment options at any time.

Pension drawdown and state benefits

As with other pension income products, drawdown could affect your entitlement to means-tested state benefits. Authorities consider money that you receive – or could receive – from drawdown when working out your eligibility. Several types of benefit could be affected, including Pension Credit, Housing Benefit and Council Tax Support.

Retirement Line are not experts on the UK benefits system and if you require further advice or information you can contact your local Citizen’s Advice or visit

What happens to my drawdown pension fund when I die?

If you pass away with money still left in your drawdown fund, it will pass to your nominated beneficiary or beneficiaries. If you don’t nominate someone, either with your drawdown provider or in your will, then your provider can decide how your funds will be distributed or the rules of intestacy will come into play.

Here is how tax is paid on an inherited drawdown fund:

  • If you have money invested in an income drawdown plan and die before age 75, it could potentially pass to your estate tax-free (subject to the LSDBA - see above).

  • If you're 75 or over when you die, any money your beneficiaries receive as a lump sum or income is taxable at their marginal tax rate.

For comparison, an annuity won’t come with similar death benefits by default. However, you can choose to leave money from your annuity to your loved ones when you pass away. See What happens to an annuity when you die?’ for more information. 

Do drawdown providers charge fees?

Providers typically charge annual service fees  for managing your investment fund. These differ across providers, so you should ideally compare fees when choosing a provider.

Some providers also charge set-up fees, annual administration fees and sometimes additional withdrawal fees. However, some of the best drawdown pension providers have no set-up or withdrawal fees. 

Providers and pension advisers may also charge you for ongoing financial advice, including regular reviews of your fund and the withdrawals you take from it. 

It can be difficult to do a straightforward comparison between providers as they often have very different charging structures. Make sure you look closely at the different types of fees from each provider. Remember also that an independent financial adviser who specialises in income drawdown will normally be able to explain all you need to know.

How do I choose the best drawdown pension?

Your existing pension scheme provider may offer drawdown, meaning you can just ask them to take care of everything for you. Many of the leading pension providers offer drawdown, including Aviva, PensionBee, Prudential, Royal London, Scottish Widows and Standard Life.

However, you don’t have to stay with your pension scheme provider. You have the right to shop around and move your money to a drawdown provider offering more favourable charges, investment options and performance, product features, flexibility or customer service levels.

Start by asking your existing pension scheme whether you would lose any benefits or pay exit fees by moving to another provider. You can then carry out your own research to help you choose the best drawdown pension for your circumstances, or ask an independent financial adviser for help. They can potentially provide a better comparison of drawdown providers and recommend one that is the best match for you.

When is drawdown a good option?

Whether flexi-access drawdown is a good option for you will depend on your circumstances, needs, attitude to investment risk and other retirement income objectives.

As an example, you may consider drawdown a suitable choice if you have access elsewhere to regular, guaranteed retirement income. This could for example be from savings, investments, employment, a final salary pension, an annuity or the State Pension.

If sources such as these cover your essential living costs, you may feel comfortable with the investment risk that drawdown involves. But if other sources of income don’t cover your essential living expenses, you may prefer not to take on the investment risk that comes with drawdown. 

Drawdown might also be appropriate if you want to keep your options open. For example, you may choose drawdown now, leaving the option to use any remaining pension fund to buy an annuity in the future, such as when your possible deteriorating health might make you eligible for an enhanced annuity

These are just potential scenarios, and you need to make a decision that’s right for you. Whatever the case, remember that flexi-access drawdown involves investment risk, as well as the potential for investment growth. As mentioned previously, these decisions can be complex, so there is always the option to consult an independent financial adviser for advice should you need to.

What are the pros and cons of drawdown?

The table below sums up some of the main pros and cons of drawdown. For further information, please see our guide to the benefits and risks of drawdown and our quick guide to annuities vs drawdown.

Pros and cons of pension drawdown



Flexible income options: take a regular income (which you can change whenever you wish) or ad-hoc withdrawals.

You could run out of money if you withdraw too much, too soon – especially if your fund performs below expectations.

The potential for money in your pension fund to grow due to good investment performance.

If inflation exceeds investment performance your pension pot could lose value in real terms. Inflation can also affect the value of other retirement income solutions

Potential flexibility to take income in a way that limits your tax liability.

As with other retirement income solutions, you could lose valuable benefits provided by your pension scheme if you put money into drawdown. 

The flexibility to do something different in the future, such as buy an annuity.

You or your financial adviser need to regularly monitor your drawdown pension to make sure you don’t run out of money earlier than expected.

Pass on the value of your fund to your beneficiaries when you die.

Set-up fees and annual charges are payable to your drawdown provider, which will reduce the size of your pension savings.

Beware of pension scams

Unfortunately, some people try to cheat consumers out of their pension savings. Please be on your guard against this type of fraud to avoid becoming a victim of pension scammers.

These scams can take many forms. The Pensions Regulator lists examples including invitations to place some or all of your pension pot into what appear to be attractive investment opportunities. These often stress a need to invest your savings in order to avoid missing out on an opportunity.

You can find out more about pension scams and how to avoid them on the government-backed MoneyHelper website.

Help to make the right decision about drawdown

If you are thinking about how to access your pension pot, here are some of the places you can turn to for help:

Pension Wise

Pension Wise is the government-backed pension guidance service. It offers free impartial guidance to over-50s about taking money from a defined contribution pension scheme. 

Independent financial advice 

You don’t have to take financial advice before choosing drawdown, meaning that you could take a DIY route. However, an adviser can help you compare drawdown providers, discuss how much to take to ensure you have money for the long term, and offer advice on tax matters. Retirement Line partners with trusted financial advisers and we would be happy to recommend them to you.

Retirement Line's annuity service 

As the UK's largest pension annuity broker*, we specialise in helping people aged 55+ shop around for the best annuity rates and income. If you are unsure whether an annuity is right for you, why not talk to one of our friendly and helpful Annuity Specialists? They can provide comprehensive information about this option and as many personalised quotes from the UK’s leading annuity providers as you require.

You can also use our free annuity calculator to see how much income you could secure with an annuity - or call us on 0800 652 1316 or request a call back to talk to one of our friendly team today. 


LSA and LSDBA levels. Tax on your private pension contributions. Accessed 23 May 2024.

How tax is paid on an inherited drawdown fund. Tax on pension death benefits. Accessed 23 May 2024.

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