New to pension drawdown?
Take a look at our guide to drawdown to find out more about the risks and benefits, and how to get started.
Drawdown Essentials
Annuity vs drawdown – what are the differences?
Learn more about the differences between annuities and drawdown, and how you could combine your retirement options for more security and flexibility in later life.
When’s the best time to make a pension withdrawal?
If you're planning to take an income from your pension, how much you take, and when you take it can have big implications on the amount of tax you’ll pay. We reveal how to make tax efficient pension withdrawals.
FAQs
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With drawdown, you can normally take 25% of your pension tax free. The rest is taxed as income when you withdraw it.
If you move your entire pension into drawdown, you’ll receive all your tax-free cash in one lump sum payment.
If you choose to move your pension into drawdown in stages, then you’ll receive your tax-free cash in stages too (up to 25% of the portion you move each time).
The tax-free cash you can take will generally be limited to a lifetime amount of £268,275 although a higher amount may be available if you have a form of pension protection giving a higher entitlement.
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You cannot pay directly into a drawdown pension. You are able to pay into other pensions, including an HL Self-Invested Personal Pension (SIPP), after you've accessed money. But there are a few rules you need to be aware of.
If you've taken a taxable income from your drawdown pension, you'll have triggered the Money Purchase Annual Allowance (MPAA). This means your pension contributions into the HL SIPP and any other money purchase pension arrangements you have are limited to £10,000 in total.
If you've only taken your tax-free cash, then usually the standard annual allowance applies (currently £60,000 across all your pensions). Pension and tax rules can change, and benefits depend on your circ*mstances.
A further rule to be aware of is if you use tax-free cash to significantly increase pension contributions, HM Revenue & Customs (HMRC) can impose a tax charge of up to 70% of the value of the tax-free cash. This is called tax free cash recycling. Download our Recycling Factsheet to know more.
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No, drawdown isn't available from a defined benefit pension.
If you transfer a defined benefit pension into a defined contribution pension, you might have drawdown as an option depending on what the new pension provider offers. However, transferring your defined benefit pension to a personal pension plan is probably not in your best interest. Defined benefit pensions not only give you a guaranteed income, they also offer benefits to a spouse or partner once you die. And these benefits are usually lost upon transfer.
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Under current rules, your drawdown pension will be measured against the lifetime allowance (£1,073,100). But since 6 April 2023, there will be no lifetime allowance charge if you exceed the limit. From April 2024, the lifetime allowance is set to be completely abolished.
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Drawdown is one of the most flexible retirement options. However, it doesn't come without its risks and disadvantages.
You could run out of money if you withdraw too much, your investments don’t perform as you’d hoped or you live longer than expected. Your income also isn’t secure, it could fall or even stop completely.
It’s also possible you’ll get back less than you originally invested, as all investments can fall as well as rise in value.
