Pension drawdown 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 55. This gives you money to live on during your retirement.

Our comparison shows drawdown pension options. They all offer income drawdown in exchange for your personal pension plan. Compare as many of the drawdown pension providers as possible to find the best pension drawdown rates.

Pension drawdown is complex. Our comparison table will help you choose a product, and you could use a pension drawdown calculator to help. But you might also like to use our broker form to get pension advice.

How does a drawdown pension work?

When you get access to your pension fund at 55, you can move it into a flexi access drawdown pot. This means you keep most of your money invested and draw down what you need.

With pension drawdown, you've got the potential for investment growth even through your later years. But remember that your drawdown pension fund could also fall in value. Your income might be adjusted depending on how well your investments perform. Your money is usually invested in the stock market.

You can choose how much of an income you get while your money remains invested. Of course, the more you take, the less you might have available to you later in life.

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.

What options do you get with pension drawdown?

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 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.

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.

Income drawdown 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 the benefits of pension drawdown?

Pension drawdown comes with several benefits. These include:

  • You can carry on investing your money, so with the best performing drawdown pensions it has a chance to grow even more

  • You can continue optimising your pension benefits post-retirement, especially if you don't need a fixed regular income

  • You're free to dip in and take money out here and there, as you please You can dial up or down how much you take out each year

  • You can manage your tax liability (for example, you could adjust your income in a certain year to suit your situation)

  • You can keep your options open by doing pension drawdown and then buying an annuity later.

  • You can pass your savings to your loved ones.

What are the downsides to a drawdown pension?

There are also some disadvantages to pension drawdown. For these reasons, it's not right for everyone.

The downsides include:

  • You don't a guaranteed annual income

  • It's not great if you're worried you'll run out of money

  • There can be high pension drawdown charges

  • There's always risk in investing, and you might not want this in retirement.

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 12,500 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

Q

Does my pension company have to offer me income drawdown?

A

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

Q

Can I make withdrawals from an income drawdown pension?

A

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.

Q

Am I taxed on income drawdown?

A

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

Q

What is flexible income drawdown?

A

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.

Q

Is there a limit to how much I can take as an income?

A

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

About our pensions that offer income drawdown comparison

Q

Who do we include in this comparison?

A

We include pension companies from our panel that offer income drawdown with their pensions. They are regulated by the Financial Conduct Authority (FCA).

Here is more information about how our website works.

Q

How do we make money from our comparison?

A

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.