Pension Drawdown

The value of pensions and the income they produce cal fall as well as rise. You may get back less than you invested.

A drawdown pension allows you to take income from your pension pot while the pot remains invested. You can choose how much pension you want to be paid each year within certain limits. There are two forms of drawdown pension:

  • capped drawdown
  • flexible drawdown

Capped drawdown pension

With a capped drawdown pension there's a maximum amount you can draw each year but no minimum amount. This annual limit is calculated by your scheme administrator based on the value of your pension pot and factors set by the Government Actuary's Department.

While you're under 75 your pension scheme must review the annual limit at least once every three years. Other events can trigger a review of the limit. When you reach age 75 the scheme administrator must review the annual limit every year.

If you take more than this limit in a year the excess will be subject to a tax charge as an unauthorised payment.

Because of these reviews pension payment amounts can go down as well as up. The changes in amount can be significant depending on the circumstances when the review was made.

Flexible drawdown pension

To qualify for flexible drawdown you must already be getting a pension of at least £20,000 each year from 'secure pensions' such as the State Pension, most lifetime annuities and pensions paid from defined benefits schemes. With flexible drawdown there's no limit on the amount you can draw from your pension scheme in any year. You can:

  • leave it all in the scheme
  • take the whole pension pot in one go
  • take just part of it

As there is a vast array of choice it is vital to obtain expert financial advice.