Understanding pension drawdown: a complete guide

Pension drawdown is one of the most flexible ways to take an income from your defined contribution pension pot once you reach age 55 (rising to 57 from 2028). Rather than buying an annuity that pays a fixed income for life, drawdown keeps your pot invested and lets you withdraw money as and when you need it.

The tax-free lump sum. Most people can take up to 25% of their pension pot completely tax-free, usually as a single lump sum at the start, up to a maximum of £268,275 across all your pensions. The remaining 75% can then be drawn down flexibly — but every withdrawal from that remaining pot is taxed as income in the year you take it, alongside any other income such as the State Pension.

Why the order and amount of withdrawals matters. Because withdrawals are taxed as income, taking too much in one tax year can push you into a higher tax bracket unnecessarily. Many people choose to draw an amount roughly equal to their personal allowance (£12,570 for 2025/26) each year where possible, to minimise tax, supplementing this with their tax-free lump sum or other savings.

The investment risk. Unlike an annuity, your pot remains invested throughout drawdown, meaning its value can fall as well as rise. Withdrawing too much, too early, particularly during a market downturn, can permanently damage how long your pot will last — a phenomenon known as "sequencing risk". Many advisers suggest keeping 1-3 years of essential spending in lower-risk assets to avoid being forced to sell investments at a loss.

Drawdown gives you control and flexibility, but that flexibility comes with responsibility — there's no guarantee your pot will last as long as you do. Modelling different withdrawal rates against realistic growth assumptions, as our Pension Drawdown tool does, is one of the best ways to stress-test your plan before committing to a strategy.