Drawdown in detail

Think drawdown is right for you?

How it works in detail

  1. Take up to 25% tax-free cash of the retirement savings you move into drawdown
  2. Choose the funds you invest in
  3. Set the level of income you want to receive – the pension company will pay the income to you but it will be taxed. You'll pay tax on any income you take through , just as you do when you're employed
  4. Let the pension company know if you want to take a one-off withdrawal – this will be taxed. You'll pay tax on any income you take through , just as you do when you're employed
  5. Every year you'll be sent a statement of the funds you are investing in, their value and any transactions you have made
  6. Check your investments to make sure your funds are performing as expected, and they're continuing to support your income requirements

Before you make a decision, you should consider the following:

How long you want your income to last

There are no guarantees that income from drawdown will last for the rest of your life.

Any other sources of income

If your drawdown pot runs out, will you have another income you can rely on? You should consider other income you may get and when you'll receive it. For example, state or final salary pension, income from property or other investments, or perhaps you'll still be receiving a salary.

Understanding how much income you get from other sources may help you manage how much you need to take from your drawdown pot.

Your understanding of investments

You'll need to make sure you choose the right investments to balance your attitude to risk and still get the investment growth you need to meet your income requirements. Investments are complex but generally those with greater risk produce higher returns.

Are you prepared to lose some or all of your savings if you make the wrong decision? You may want to pay a financial adviser to manage your investments for you.

Commitment to regularly review your investments

Because your retirement savings are still invested, you'll need to regularly review how your investments are performing.

If you're taking an income or withdrawals and your investments aren't performing as expected, your drawdown pot could run out faster than you thought if you don't change the amount you're taking out.

You could pay an adviser to carry out these reviews for you.

Impact on tax allowances and benefits

Taking an income or withdrawals could push your income into a different tax bracket and affect any tax allowances you are entitled to. The amount of income and savings you have can also affect any means tested state benefits you may have.

You can find out more on Gov.uk
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Already in capped drawdown?

Although it's no longer available to new customers, if you already have a capped drawdown plan, you will remain in it unless you switch to the new 'flexi-access drawdown'

Capped drawdown

A type of drawdown which allows you to take an income that's capped at a maximum of 150% of the value of an equivalent annuity. Using capped drawdown will not affect how much can be paid into a pension in the future.

Flexi-access drawdown

This is the new type of drawdown introduced from April 2015. There are no limits on the amount of income you can take each year. Taking a one-off or regular withdrawal from flexi-access drawdown will affect how much can be paid into a pension in the future without it being subject to a tax charge.

What next?

Choosing drawdown is an important decision. It makes sense to read the information on this website, seek financial advice and take advantage of the free and impartial guidance from Pension Wise before you make a decision.
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We can:

  • help you find a financial adviser who can provide you with financial advice
  • provide you with more information and how to proceed if you think drawdown is right for you

Whatever you want to do next, we can help.

Annuities -
how do they work?

If you're looking for a regular secure income to see you through the rest of your life, then an annuity could be the route for you.

Annuities explained

Cash lump sum -
how much can I take?

You can take a cash lump sum from the retirement savings you've built up over the years – you don't have to take it all at once.

Cash lump sums explained
Pension wise

Free, impartial, government service

Pension wise
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