Pension drawdown lets you take a flexible income from your pension while keeping the rest invested. It’s an alternative to buying an annuity and can give you greater control over how and when you access your savings.
- Flexibility: You decide how much income to take and when, allowing you to adjust withdrawals as your needs change.
- Tax treatment: Up to 25% of your pot can usually be taken tax free; the rest is taxed as income when withdrawn.
- Investment risk: Your remaining pension stays invested, so its value can rise or fall.
- Passing on wealth: Any remaining funds in a drawdown pot can be passed on to your beneficiaries on your death and may be subject to inheritance tax after April 2027.
- Money Purchase Annual Allowance: Once you start taking drawdown income, your annual allowance for new pension contributions reduces to £10,000.
Drawdown can offer freedom and control but also requires careful management and advice.
This article reflects our understanding of current legislation, which may change. While we can provide information, we can’t give you advice and therefore we recommend you seek professional advice before making any financial decisions. Investments can go down as well as up, and you may not get back the amount invested. Tax treatment depends on individual circumstances and available reliefs may vary.
The resources on Your Wealth can help you find a financial adviser in your local area.