When you reach 55 (rising to 57 from 2028), you can access the money you have saved in a defined contribution pension. One of the most popular ways to do that is flexi-access drawdown, which lets you take some or all of your pension while keeping control over how the rest is invested. It is a genuine alternative to handing the whole pot over for a guaranteed income, and it suits people who want flexibility, but it also carries real risks. This guide explains how drawdown works, how much tax you will pay, and how it compares with the other main options.
What pension drawdown actually is
Drawdown lets you leave your pension pot invested while taking a regular income or ad hoc lump sums from it. You do not have to buy an annuity or take everything at once. The money that stays invested can continue to grow — but it can also fall in value, and that is the trade-off at the heart of the whole approach.
Flexi-access drawdown
This is the most common drawdown option. Once you have taken your 25% tax-free cash (officially the pension commencement lump sum), you can draw the remaining 75% as income whenever you like. Every withdrawal you make from that remaining pot is taxed as income at your marginal rate, alongside any other income you have.
Uncrystallised Funds Pension Lump Sum (UFPLS)
UFPLS takes a different route. Instead of splitting your pot into tax-free cash and a taxable drawdown fund upfront, each withdrawal you take is made up of 25% tax-free and 75% taxed as income. If you take £4,000, you get £1,000 tax-free and £3,000 is added to your other income for tax purposes. That makes UFPLS a useful option if you want to take small, regular amounts without committing to a formal 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. That cap is based on the standard lump sum allowance of 25% of the lifetime allowance, which is now £1,073,100.
Worked example: a £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 |
To see how this pans out in practice: if you take £7,500 a year from drawdown and your State Pension is roughly £11,500, your total income comes to around £19,000 — comfortably within the basic rate band. Depending on how much of your personal allowance is still free, you would pay very little or no income tax. Your circumstances will differ, but the principle holds: drawdown income is taxed at your marginal rate, so keeping withdrawals modest can keep the tax bill modest too.
Drawdown versus annuity versus lump sum
Only you can weigh up whether drawdown, an annuity or taking a full lump sum suits you best. The comparison below sets out how the main features differ.
| 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
Drawdown deserves serious consideration if you want control over when and how much you take from your pension. It also suits people who have other income to fall back on — State Pension, savings, part-time work — because that reduces the pressure to draw heavily in the early years. You need to be comfortable with investment risk, and if leaving money to beneficiaries matters to you, the fact that a remaining drawdown pot passes to them is a significant advantage.
When an annuity might be better
An annuity is worth a harder look if what you value most is a guaranteed income you cannot outlive. If you are in poor health, enhanced annuity rates can make surprisingly good value, and the lack of investment risk removes a whole category of worry. If you have no dependants and little interest in leaving money behind, the security of an annuity often outweighs what you give up in flexibility.
The main risk: your pot shrinking as you withdraw
The biggest risk in drawdown is that your investments fall in value at the same time as you are withdrawing from them. Because you are selling units at lower prices to fund your income, your pot can deplete faster than you expect — a pattern sometimes called pound cost ravaging. In the worst case, money that might have lasted decades runs out early.
How to manage the risk
There is no way to eliminate the risk entirely, but it can be managed. Holding a cash buffer of one to two years of income means you do not have to sell investments at the bottom of a downturn. Diversifying across different asset types — equities, bonds, property, cash — spreads the risk. Reviewing your portfolio regularly matters too, because it lets you adjust your withdrawal rate if your pot drops significantly. A laddered approach, locking some money into fixed-term investments that mature when you need income, is another way to smooth out the unpredictable years.
Free guidance from Pension Wise
Before making any decision, it is worth getting free, impartial guidance from Pension Wise. They can help you understand your options and the tax implications without selling you anything.
- Phone: 0800 135 3300
- Online: Book a session at pensionwise.gov.uk
- Face-to-face: Available at locations across the UK
Pension Wise is guidance, not advice. They will not tell you what to do, but they will explain what you can do and help you think through the decision properly — which, with a sum this large at stake, is time well spent.
A final word on choosing
Drawdown is a powerful option, but it is an option rather than an obligation. Its appeal is flexibility: you keep control of your money, it stays invested, and what is left can pass to your family. Its cost is complexity and risk, because a portfolio can fall just when you need it most. For people with other income, a modest withdrawal rate and the discipline to hold cash through bad years, drawdown can work very well. For anyone who simply wants the certainty of an income that cannot run out, an annuity remains the safer choice. Work through the numbers, take the free guidance available, and decide on that basis rather than on impulse or guesswork.