Taking money from a UK pension by drawdown

Many people reach their mid-fifties with money saved in a personal or workplace pension.

Drawdown is one way to take that money while the rest stays invested.

These notes explain how it works. They are based on guidance from GOV.UK, HM Revenue and Customs (HMRC) and the Financial Conduct Authority (FCA).

When you can start

Most personal pensions set an age when you can start taking money from them. It is not normally before 55. Your pension provider can tell you the age for your own pension.

The government is raising this earliest age from 55 to 57. The change takes effect from 6 April 2028.

How drawdown works

With flexi-access drawdown, your provider invests your pension pot in a drawdown fund. You take money out of the fund when you choose. You can also use the fund to buy a short-term annuity, which pays you regularly for up to 5 years.

The money you leave in the fund stays invested. Its value can go up or down.

Drawdown is one of several options. You could instead buy an annuity, which pays you a guaranteed income for life. You could also take some or all of the pot as cash. Providers may offer only some of these options. You can move your pot to a different provider to get the option you want.

The tax-free part

You can usually take up to 25% of the amount built up in any pension as a tax-free lump sum. The most you can take in total is £268,275. HMRC calls this the lump sum allowance.

Some people hold a protected allowance from earlier rules, which may let them take more. Once you take the tax-free part, you have 6 months to start taking the rest.

Tax on what you take out

The rest of what you take counts as income for the tax year. Your State Pension and any earnings count too. You pay Income Tax if your total income is more than your Personal Allowance, which is usually £12,570.

Your provider takes off any tax you owe before it pays you. A large withdrawal can mean you pay tax at a higher rate. If too much tax is taken, you can claim a refund from HMRC.

Paying in after you start

You can still pay into a pension after you start drawdown. Taking cash or a short-term annuity from a flexi-access drawdown fund can lower the amount you can pay in each year before tax is due. HMRC calls this lower limit the money purchase annual allowance.

Free guidance, and a word on scams

Pension Wise gives free information about your pension options. If you are 50 or over, you can book a free appointment to talk through your options. It does not cover the State Pension, final salary or career average pensions.

The FCA says: “If you get a call out of the blue (a cold call) about your pension, the safest thing to do is hang up. It’s illegal and probably a scam.” It also says: “If you’re contacted unexpectedly and offered a free pension review, it’s likely to be a scam. Professional advice on pensions is not free.” Before you take advice, check the adviser on the FCA register.

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