When you reach 55 (rising to 57 from 2028), you can access the money you’ve saved in a defined contribution pension. One of the most popular options is flexi-access drawdown — it lets you take some or all of your pension while keeping control over how the rest is invested. This guide explains how it works, how much tax you’ll pay, and how it compares to other options.
What Is Pension Drawdown?
Pension drawdown lets you leave your pension pot invested while taking a regular income or ad hoc lump sums from it. You don’t have to buy an annuity or take everything at once. The money stays invested, so it can continue to grow — but it can also fall in value.
Flexi-Access Drawdown
This is the most common drawdown option. Once you’ve taken your 25% tax-free cash (known as the pension commencement lump sum), you can draw the remaining 75% as income whenever you like. Every withdrawal from the remaining pot is taxed as income at your marginal rate.
Uncrystallised Funds Pension Lump Sum (UFPLS)
UFPLS lets you take lump sums from your pension without first taking the 25% tax-free portion. Each withdrawal is:
- 25% tax-free
- 75% taxed as income
So if you take £4,000, you’d get £1,000 tax-free and £3,000 would be added to your other income for tax purposes. This can be useful if you want to take small, regular amounts without committing to a drawdown arrangement.
How Much Tax-Free Cash Can You Take?
You can normally take 25% of your pension pot tax-free, up to a maximum of £268,275 (based on the standard lump sum allowance of 25% of the lifetime allowance, which is now £1,073,100).
Worked Example: £200,000 Pension Pot
| Item | Amount |
|---|---|
| Total pension pot | £200,000 |
| Tax-free cash (25%) | £50,000 |
| Remaining pot for drawdown | £150,000 |
| Drawdown income over 20 years | £7,500/year |
| Tax paid (basic rate) | £0 (within personal allowance) |
| Tax paid (higher rate) | £1,500/year on income above £12,570 |
If you take £7,500 a year from drawdown and your State Pension is roughly £11,500, your total income would be around £19,000 — well within the basic rate band. You’d pay very little or no income tax.
Drawdown vs Annuity vs Lump Sum
| Feature | Drawdown | Annuity | Full Lump Sum |
|---|---|---|---|
| Control | High — you choose when and how much to take | None — fixed payments | Full access immediately |
| Tax-free cash | 25% | 25% | 25% |
| Investment risk | Yes — your pot can fall in value | No — guaranteed income | No — you take it all |
| Flexibility | Take more or less as needed | Fixed income for life | Spend it all |
| Fees | Platform and fund charges | Setup costs included in rate | Possible exit fees |
| Inheritance | Remaining pot passes to beneficiaries | Usually stops on death | Spent or inherited |
When Drawdown Makes Sense
- You want control over when and how much you take
- You have other income (State Pension, savings, part-time work)
- You’re comfortable with investment risk
- You want to leave money to beneficiaries
When an Annuity Might Be Better
- You want guaranteed income you can’t outlive
- You have poor health (enhanced annuity rates)
- You have no dependants and don’t need to leave money behind
- You don’t want to worry about investments
Investment Risk in Drawdown
The biggest risk with drawdown is that your investments fall in value while you’re withdrawing money. This is called pound cost ravaging — you’re selling units at lower prices to fund your income, which depletes your pot faster.
How to Manage the Risk
- Keep a cash buffer — hold 1-2 years of income in cash so you don’t have to sell investments in a downturn
- Diversify — spread across different asset types (equities, bonds, property, cash)
- Review regularly — adjust your withdrawal rate if your pot drops significantly
- Consider a laddered approach — lock some money into fixed-term investments that mature when you need the income
Pension Wise: Free Guidance
Before making any decisions, you should get free, impartial guidance from Pension Wise. They can help you understand your options and the tax implications.
- Phone: 0800 135 3300
- Online: Book a session at pensionwise.gov.uk
- Face-to-face: Available at locations across the UK
This is guidance, not advice — they won’t tell you what to do, but they’ll explain what you can do and help you think through the decisions.
Key Takeaways
- Flexi-access drawdown lets you take 25% tax-free and draw the rest as income
- UFPLS gives you 25% tax-free on each withdrawal without committing to drawdown
- Drawdown gives you flexibility but carries investment risk
- Annuities give you certainty but less control
- Get free guidance from Pension Wise before you decide (0800 135 3300)