Thinking about how to take money from your pension? One of the most popular options these days is pension drawdown.
But what actually is it, who can use it, how does the tax work, and what are the risks you need to watch out for? This guide will walk you through everything you need to know so you can decide whether drawdown might be right for you.
What Is Pension Drawdown?
Pension drawdown (officially called flexi-access drawdown) is a way of taking money directly from your pension pot while keeping the rest invested.
Instead of buying a guaranteed income for life (like an annuity), drawdown gives you:
- The ability to take an income whenever you need it
- The chance for the rest of your pot to remain invested and hopefully grow
- Flexibility to adjust your withdrawals as life changes
The trade-off is that you take on the risk that your pension pot could fall in value or even run out if withdrawals are too high or markets don’t go your way.
Who Can Use Pension Drawdown?
Here are the basics:
- You need to have a defined contribution pension (like a workplace or personal pension).
- You generally need to be at least 55 (rising to 57 in 2028).
- Not all pension providers or schemes allow flexible drawdown. Some older workplace schemes only offer annuities, so you may need to transfer to a more modern plan that supports drawdown.
How Withdrawals Work
When you first move into drawdown, you can usually take up to 25% of your pot as tax-free cash (known as the pension commencement lump sum).
After that, any withdrawals count as taxable income. This means they’re added to your other income in that tax year (salary, rental income, dividends, etc.).
Example:
If you earn £30,000 from work and take £10,000 from drawdown, you’ll be taxed as though you earned £40,000.
Take too much in one go and you could easily push yourself into a higher tax bracket.
Phased Drawdown – Taking It Step by Step
You don’t always have to take your 25% tax-free cash in one go. Instead, you can use something called phased (or drip-feed) drawdown.
How it works:
- Each time you move a slice of your pension into drawdown, 25% of that slice is tax-free, and the rest is taxable.
- You repeat this in stages, rather than crystallising the whole pot at once.
Why it can help:
- Tax efficiency – If you’ve retired and your income is low (perhaps you’re not yet claiming State Pension), you may be able to take regular withdrawals that fall within your personal allowance (£12,570 in 2025/26). That means little or no tax on some withdrawals.
- Flexibility – You spread your tax-free cash over multiple years instead of taking it all up front.
- Bridging income gaps – Useful if you want to phase your retirement and gradually step down from work.
Example:
David retires at 60 with no other income until his State Pension at 67. By using phased drawdown, he takes £16,000 a year:
- £4,000 is tax-free cash
- £12,000 is taxable
Because he has no other income, the £12,000 fits within his personal allowance. He keeps the full £16,000 tax-free. Over seven years, that’s £112,000 of income with no tax liability before his State Pension even begins.
The Money Purchase Annual Allowance (MPAA)
One of the biggest traps in drawdown is the Money Purchase Annual Allowance (MPAA).
As soon as you take any taxable income from your pension (beyond the initial 25% tax-free cash), your annual pension contribution allowance drops from £60,000 to £10,000 a year (2025/26 figures).
Why it matters:
- If you are still working and want to keep paying into pensions, triggering the MPAA could seriously restrict the tax relief you get.
- Taking just a small taxable withdrawal could close off a lot of future pension saving opportunities.
Investment Strategy Matters
One of the big differences between drawdown and an annuity is that your money stays invested.
That can be both a strength and a weakness:
- Positive, because your pot has the chance to grow and last longer
- Negative, because markets can fall and reduce your income at the wrong time
This means you need a clear investment strategy that supports your withdrawal plans.
- Balance growth and stability
- Match risk to your retirement goals
- Review it regularly, because what works at 60 may not work at 75
Drawdown isn’t “set and forget” — it’s an ongoing plan.
Pension Drawdown: Pros and Cons at a Glance
Advantages:
- Flexibility – take money how and when you want
- Keep your money invested for potential growth
- Inheritance benefits – can be passed on tax efficiently
- Tax planning opportunities – align withdrawals with allowances
Disadvantages:
- No guaranteed income – risk of running out of money
- Investment risk – your pot is exposed to market ups and downs
- Tax traps – large withdrawals can create hefty tax bills
- MPAA – restricts future pension saving once triggered
- Ongoing responsibility – requires regular reviews and management
Final Thoughts
Pension drawdown gives you freedom, flexibility, and control over how you use your retirement savings. But it also comes with risks — from market volatility to tax pitfalls — that you need to be prepared for.
The key is having a plan:
- Know how much you can afford to take
- Be clear on the tax consequences
- Keep your investments aligned with your goals
Done right, drawdown can be one of the most powerful ways to manage your retirement income.
I’m Lee, The Pensions Guy — helping people make smarter retirement and pension decisions. If you’re considering drawdown, make sure you understand the rules, the risks, and whether it’s the right fit for your plans.