What is pension drawdown and how does it work?

Pension drawdown (sometimes called flexi-access drawdown) is a way of taking income from your pension pot while leaving the rest invested. Instead of exchanging your pension fund for a guaranteed income for life (an annuity), you keep the money in your pension and withdraw from it as and when you need to.

Here is how it works in practice. When you reach the minimum pension access age, you can normally take up to 25% of your pot as a tax-free lump sum. The remainder stays invested and you draw an income from it — either as regular payments or irregular lump sums. Any withdrawals beyond the tax-free element are taxed as income in the year you take them.

Because the pot stays invested, it can continue to grow, but it can also fall in value. How long the money lasts depends on how much you withdraw, how investments perform, and how long you live. This is sometimes called longevity risk — the possibility of outliving your savings.

Drawdown has become the most common way UK savers access their pension: FCA data for 2024/25 shows roughly four drawdown plans were entered for every one annuity purchased.

From April 2027, unspent pension funds will be included in a person's estate for inheritance tax purposes, so drawdown also has estate planning implications that were not a factor in previous years.

Because the decisions involved — withdrawal rate, investment strategy, tax planning — are complex and long-lasting, speaking to a regulated financial adviser is the most reliable way to make sure a drawdown plan suits your individual circumstances.