What is Pension Drawdown?

Your Financial Plan
Compare Financial Advice Logos
10-10-2019

Pension drawdown is a highly flexible way of taking your pension. Also known as income drawdown, it used to be open to only those with larger pension pots, but it’s now an option for most people with a defined contribution pension.

  • It allows you to take a more flexible approach to retirement income, withdrawing an income from your investments or lump sums — or a mixture of the two — as required.
  • It offers the opportunity for investment growth in retirement.

If you’re new to pension drawdown (from April 2015 onwards) you’ll enter into an arrangement now known as flexi-access drawdown, so called because of the far greater level of flexibility it provides for taking your pension.

The way you take your pension through drawdown will affect how your pension is taxed, so it’s worth getting expert advice to make sure you don’t pay more than is necessary

You can only access your pension pot through income drawdown once you hit the age of 55 in the vast majority of cases. This is the same as the rules for accessing your pension in all other ways, unless you’re part of a scheme that grants you early access or you’ve been diagnosed as severely / terminally ill with a considerably shortened life expectancy.

Find > Organise > Simplify
Take Control Of Your Financial Future

How Does Pension Drawdown Work?

When you designate all or part of your pension to income drawdown you’re entering into a flexible pension arrangement.

Rather than handing over your pension pot to an insurance company in exchange for an income for life known as an annuity, pension drawdown leaves you free to leave your retirement savings invested and create your own programme of lump sum and income payments.

You can take the first 25% of your pension as a tax-free cash lump sum before you move your pension into income drawdown.

Assuming you do choose to take the 25% tax-free cash lump sum from your pension, drawdown offers you two retirement income options:

  • Invest your pension pot as you see fit to provide a taxable income
  • Withdraw cash lump sums from your drawdown fund as required.
John Spink Head of Financial Planning at Drewberry

If you don’t take the 25% tax-free cash lump sum you’re entitled to at the outset, you may be able to receive 25% of any lump sums or income payments you receive from the drawdown fund tax-free at a later date.

John Spink
Head of Financial Planning

For high earners it is important to note you’re capped in terms of how much you can receive as a 25% tax-free lump sum by the pension lifetime allowance.

If your pot is worth more than the current £1,073,100 lifetime allowance (this ceiling may be higher if you’ve protected your lifetime allowance), your tax-free cash lump sum will be capped at 25% of your lifetime allowance, regardless of the size of your pension pot.

What is a UFPLS or FLUMP?

There is a third way of drawing down your pension — this involves taking an uncrystallised fund pension lump sum (UFPLS) out of your pension pot. This is also known as a FLUMP.

However, it’s slightly different from pension drawdown in that it’s only available on any uncrystallised pension funds, i.e. those that aren’t in drawdown. Instead, you leave your pension cash where it is (invested with your pension provider) and take lump sums direct from the pot as required.

Every time you withdraw cash from your pension with an UFPLS, the first 25% of each withdrawal is tax-free.

For uncrystallised pension funds you choose to access through drawdown, there’s no initial upfront 25% tax-free payment. Every 25% tax-free lump sum has to come with an accompanying 75% of taxable cash. So if you want £10,000 tax-free using a UFPLS, you’d also have to take £30,000 of taxable cash.

UFPLS is slightly less complicated than pension drawdown because you don’t have to find a drawdown provider and pick investments for that fund. However, not every pension provider will allow you to take UFPLS and some may charge each time you take a lump sum.

Also, as you move closer to retirement your pension provider tends to put your cash into safer investments to lower the risk of loss that you won’t have time to regain. That could mean that cash that stays invested in your pension pot may only have limited growth potential.

You’ll have to carefully consider where your pension pot is invested if you’re considering using UFPLS and whether it will provide the level of growth necessary to sustain your withdrawals in the long-term.

As with other areas of pension drawdown, it’s best to discuss your options with an adviser before choosing a series of FLUMPs to provide your retirement income.

How Much of My Pension Do I Have to Move to Drawdown?

There’s no rule regarding how much of your pension can be designated to drawdown. You can designate as much or as little as you like, when you like.

You don’t have to put your pension into drawdown all at once — you can use phased income drawdown to shift your pension into drawdown gradually. Every time you take money out of your pension pot and put it into a drawdown fund, the first 25% of your withdrawal is tax-free.

Keep in mind that some pension providers could charge each time you designate cash to drawdown. Working with a qualified pensions adviser they should shop around to find the best income drawdown option for you. This may mean moving your pension pot from one provider to another before entering into drawdown.

In many cases, especially for those with multiple pension pots and other steady income streams in retirement (e.g. buy-to-let properties or a separate final salary pension), income drawdown can be a more tax-efficient way of taking your pension. This is because pension drawdown gives you an adjustable pension income that you can alter as necessary in any given tax year to keep yourself out of higher tax bands.

Will My Drawdown Pension Run Out?

When comparing an annuity with flexi-access drawdown, the one thing you won’t get with pension drawdown is security. An annuity will pay you a guaranteed income for the rest of your life — and may even pay a reduce survivor’s pension to your spouse or civil partner after your death as well.

Even if you live for long enough that your annuity payments start to exceed the amount you had in your pension pot when you bought the annuity contract, the insurance company has to continue paying you.

Did you know…?
According to the Office for National Statistics, 1 in 10 men aged 50 today is expected to live to 100.

How Long Will My Pension Last?

If you opt for pension drawdown, the pot is finite. So if you take too much cash, or your investments don’t perform as you hoped, then you risk running out of money further down the line.

Our Pension Drawdown Calculator below can help determine when your pension pot will run out depending on its investment performance, how much income you’re expecting to draw from it per month and factoring in your age and life expectancy.

The calculator can also work out how much you should set your pension income at to make it last to a specific age, again based on investment performance.

Pension Drawdown Calculator

When will your income drawdown pension run out? Enter the anticipated size of your pension pot at retirement and follow these easy steps to calculate how long your pension will last.

  • £
  • £
Discuss your results with our experts
Receive Our Making Sense of Pension Income Drawdown guide

Should I choose Flexi-Access Drawdown?

There’s no easy answer as to whether pension drawdown is the best retirement option for you.

It depends on a number of factors, such as your age, state of health and life expectancy.

The size of your pension investments is also crucial — those with smaller pension pots may not be able to make their pension last for as long as they require and an annuity could therefore be a better option.

If you’re looking for a guaranteed income for the rest of your life and aren’t overly keen on taking on investment risk in your later years, then it’s likely that you’ll find an annuity is better than income drawdown.

However, if you’re looking for a more flexible and tax-efficient way to take your pension with more control over your retirement savings, then it may well be that pension drawdown is better than an annuity in these circumstances.

Once you’ve started using pension drawdown, if you decide you want a guaranteed, stable income as you get older you can always purchase an annuity with the remainder of your pension pot at a later date. However, if you buy an annuity first with your entire pension pot you can’t then change your mind and opt for pension drawdown.

Also, remember that your current pension provider may not currently allow you to use income drawdown. If that’s the case, you’ll have to transfer your pension to another provider who will.

Your Financial Plan – Build A Better Future

A good financial plan can help you make the right decisions when it comes to your finances. Make the right decisions today to build a more prosperous future.

Good financial planning with clear goals can increase your retirement income by as much as 53%. Old Mutual Redefining Retirement Survey

Why Speak to Us…

We started Drewberry because we were tired of being treated like a number and not getting the service we all deserve when it comes to things as important as planning our finances. Below are just a few reasons why it makes sense to let us help.

  • See your financial future
    We use sophisticated financial modelling technology to visually show you your financial future. A living financial plan where you can clearly see what you can achieve depending on the decisions you make – read more
  • Achieve the retirement you deserve
    Can afford that dream round-the-world trip? Can you help your children onto the property ladder? We’ll model your goals and build your financial plan to help you achieve them.
  • Our expertise saves you time and provides peace of mind
    Organising your pensions, investing your assets, managing risk and making the most of your tax allowances is all taken care of as part of your financial plan.
  • We’ve got bargaining power on our side
    This allows us to negotiate better rates for you than dealing with providers yourself.
  • You’ll speak to a dedicated expert from start to finish
    You will speak to a named expert with a direct telephone and email. No more automated machines and no more being sent from pillar to post – you’ll have someone to speak to who knows you.
  • Benefit from our 5-star service
    We pride ourselves on providing a 5-star service, as can be seen from our 2386 and growing independent client reviews rating us at 4.92 / 5.
  • Gain the protection of regulated advice
    You are protected. Where we provide a regulated advice service we are responsible for the decisions we help you make. Doing it yourself or going direct to a provider won’t provide this protection, so you won’t benefit from these securities.
Our Services & Tools

Get In Touch

Do You Need Some Help?

Our purpose is simple: Improve Your Financial Wellbeing.

We use clever technology to bring your financial future to life 🤓

See Your Financial Future
  • Find, organise and simplify your Pensions, ISAs and other investments.
  • Plan your financial future and put a strategy in place to achieve this.
  • Regularly review how you are doing to make sure you stay on track.

Pension Pot Calculator

Pension Drawdown Calculator

Final Salary Calculator

Contact Us
Head Office & Pensions and Investments
Senator House
85 Queen Victoria Street
London
EC4V 4AB
Personal Insurance & Accounts Payable
Telecom House
125-135 Preston Road
Brighton
BN1 6AF
Drewberry London Office MapDrewberry Brighton Office Map
Our Core Principles
  • 1You Come FirstWe are a client focused business who always aim to put you first.
  • 2We are ExpertsTo provide you with the best advice, we need to know our stuff!
  • 3We are HumanWe are real people with feelings who are here to help you.
  • 4We are ProfessionalProviding a 5-star service requires a professional approach to everything we do.
  • 5We are here to EducateWe don't believe in sales, we are here to educate so you can make informed decisions.
Finalist - Moneyfacts AwardsFinalist - Cover Excellence AwardsHighly Commended - Protection Review Awards
Proud member of AMII (Association of Medical Insurers & Intermediaries)Proud member of Money Advice ServiceProud member of UnbiasedProud member of BIBA (British Insurance Brokers' Association)

If you are unhappy with our service, we have a complaints procedure, details of which are available upon request. If you are unhappy with how your complaint has been dealt with, you may be able to refer your complaint to the Financial Ombudsman Service (FOS). The FOS website is www.financial-ombudsman.org.uk.

Drewberry Ltd is registered in England and Wales. Companies House No. 06675912

Drewberry Ltd registered office: Telecom House, Preston Road, Brighton, England, BN1 6AF. Telephone 0208 432 7333

Drewberry Ltd (Financial Conduct Authority No. 505473) is an Appointed Representative of Quilter Wealth Limited and Quilter Mortgage Planning

Limited, which are authorised and regulated by the Financial Conduct Authority.

Cookie Use

Drewberry™ uses cookies to offer you the best experience online. By continuing to use our website you agree to the use of cookies. If you would like to know more about cookies and how to manage them please view our privacycookie policy.