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Income drawdown is complex and not suitable for everyone. Your income will be affected by the value and performance of underlying assets; make sure you understand the risks and costs before you go ahead and transfer.

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Last updated: 25 May, 2021

What is a drawdown pension?

A drawdown pension is complex and isn't suitable for everyone. Your income will be affected by the value and performance of underlying assets. So make sure you understand the risks and costs before you go ahead.

Pension drawdown is an option offered by pension companies. It lets you turn your pension fund into an income when you reach the age of 55 or over. This gives you money to live on during your retirement.

When you get access to your pension fund, you can move it into a flexi access drawdown pot. This means you keep most of your money invested and withdraw a monthly sum that covers your monthly expenses.

Our comparison table will help you choose a product, and you could use a pension drawdown calculator to help.

What types of drawdown pension are there?

When you're looking for the best drawdown pension, there are two main kinds of drawdown pension products to choose from.

  • Pension drawdown. This was launched in 2015 when the pension drawdown rules changed. With this kind, there's no limit on the amount of drawdown funds you can take out of your pension savings. Any pension drawdown arrangements set up after 6 April 2015 are called flexi access drawdown.

  • Capped drawdown. This was available until April 2015. It means there are limits on the amount of income you can take out of your drawdown funds. The pension drawdown rules used to be a lot more restrictive. If your arrangement is a capped drawdown one, then you could stick with it, or convert to flexi access drawdown.

Do you need to transfer to get an income drawdown?

No, you don't need to transfer. But, if your pension company doesn't offer income drawdown, you can transfer your pension to another company that does.

You might face charges if you transfer your pension fund to another company. This could mean you have a smaller fund to get an income from.

How to compare pension drawdown options

Our pension drawdown comparison will help you to compare pension products. You could also use a drawdown calculator to help you.

Click 'view details' at the side of each listing to find out more about each drawdown pension product. You'll be able to find out about the best drawdown pension providers and find out about drawdown pension charges.

Pension drawdown is complex, so you might also like to use our broker form to get pension advice.

Which are the best performing drawdown pensions?

This depends on your pension provider and what kind of flexible drawdown options they offer. You'll also need to take pension drawdown tax rules into account.

Check with your provider, but your pension drawdown options might include:

  • Taking some as an income and leaving the rest invested (you can choose the amount you take and leave)

  • Withdrawing up to 25% tax free from your pension, then taking the rest as an income

  • Withdrawing up to 25% tax free from your pension, then splitting the rest between an annuity and income drawdown.

If you choose to take a large income drawdown from your pension fund from the start of your retirement, you might run out of money later in life. A drawdown calculator may be helpful for your calculations.

Another option is to delay using your pension, which means it could carry on growing, tax free. This might be an option if you've already got enough money to live off. You could carry on making pension contributions and getting tax relief on them during this time.

There's lots of choice in terms of what you can do with your pension when you reach the age of 55 or retire. You can even mix and match the options. But remember that not every pension provider will offer all the options, so you'll have to check carefully.

Use our broker form to get pension advice and to discuss the best performing drawdown pension providers.

What are the pros and cons of a drawdown pension?

Pros

  • Get access to tax-free cash immediately
  • Ability to vary your income depending on your needs
  • More control over your investment
  • Benefit from investment growth in a tax-efficient way

Cons

  • Returns are not guaranteed
  • Large early withdrawals maybe unsustainable for the future
  • Flexibility typically leads to more administration costs
  • Investment/ fund performance directly affects your level of income

Income drawdown or an annuity?

You can choose whether to go for an income drawdown pension or an annuity. Or, you could choose to have both.

But there are a few things to think about before you make any decisions.

This option could leave you with little or no money later in life if you don't restrict how much income you take each year. Your money stays invested through income drawdown, so the value of your money could go up as well as down. As the money is often invested in stocks and shares, it can perform well or not so well.

An annuity gives you a guaranteed income for life, in exchange for your whole pension fund. It might not be a big income, as rates are low, but it'll continue to pay out until you die. However, you'll be handing your cash over and losing the right to any growth from your fund.

What are pension drawdown tax rates?

You'll get the initial 25% of your pension tax free. Then, as your pension is considered an income, anything after that is taxed as per the income tax structure.

This means that, in England, Wales, and Northern Ireland:

  • The first £12,570 is tax-free (unless you have income from anywhere else)

  • You'll pay 20% tax on the next £37,500 after that

  • You'll pay 40% tax on anything above £50,000

  • You'll pay 45% tax on anything above £150,000.

You could use an income drawdown calculator or even a pension drawdown tax calculator to help you work out how much tax you'll pay if you take money out.

Inheritance on pension drawdown explained

A drawdown pension can be a good option in terms of inheritance for your family, compared with an annuity. The amount of tax that would be owed on a drawdown pension has gone down in recent years.

Most of the time, with an annuity, you can usually only pass it to your spouse or dependents aged 23 and under. With a drawdown pension, you can leave it to anyone you choose. They don't need to be a dependent.

With income drawdown, if you die before you're 75, you can make arrangements for it to be passed on to a nominated person, tax free. It can either be taken as a lump sum or as a regular income.

If you're over 75 when you die, you can still make arrangements for it to be passed on to a nominated person, but it won't be tax free. It'll be taxed according to their income. A drawdown pension calculator is a good way to work out what they'd get, if you know what their income is.

Income drawdown pension FAQs

No, but if it is something you want then you could transfer your pension fund to another company that does offer income drawdown.

Yes, but only the first 25% of your withdrawal will be tax free. The more you withdraw, the less you have to take an income from through your retirement.

Yes, but how much will depend on your income tax rate. You can find out more on pension tax here.

When you can change the amount you take as an income. This helps prolong your income based on if your investments are growing or falling in value.

Most income drawdown pensions let you take what you want, but capped income drawdown pensions restrict how much you can take each year.

An income drawdown is best suited for those who are willing to to leave their pension fund invested in the stock market so that it has a reasonable chance of growing. This makes income drawdown a high risk choice because the stock market can go up or down and you could end up with less than you invested.

About our pensions that offer income drawdown comparison

Our comparison tables include providers we have commercial arrangements with. The number of listings in our tables can vary depending on the terms of those arrangements, as well as other market developments. They are all from providers regulated by the Financial Conduct Authority (FCA).

Here is more information about how our website works.

We have commercial agreements with some of the companies in this comparison and get paid commission if we help you take out one of their products or services. Find out more here.

You do not pay any extra and the deal you get is not affected.

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