Pension Drawdown FAQ's
What Is Drawdown?
Drawdown allows you to leave your money in your pension pot and take regular income or lump sums from it as and when you want. Also known as flexible retirement income or flexi-access drawdown, any money left in your pension pot remains invested, which may give your pension pot a chance to grow, but it could go down in value too.
A quarter (25%) of your pension pot can usually be taken tax-free and any other withdrawals will be taxed as earnings whether you take them as regular income or as lump sums. The more money you take out each time, the less money is left to provide future income. You may need to move into a new pension plan to do this. It’s worth keeping in mind that you do not need to take an income.
How Does Pension Drawdown Work?
Drawdown allows you to leave your money in your pension pot and take regular income or lump sums from it as and when you want. It is often referred to as income drawdown. Any money left in your pension pot remains invested, which may give your pension pot a chance to grow, but it could go down in value too.
What Happens If I Die During Drawdown?
If you die before the age of 75, any money left in your pension pot can be passed on to your beneficiaries usually tax free. If you die after the age of 75, any money you pass on will be taxable at the recipient’s highest rate of tax.
When Can I Access My Pension?
Money cannot normally be withdrawn from a pension until the age of 55. However, once you reach 55, you’ll usually be able to access your pension and start taking an income from it as and when you want.
How Much Can I Take From My Pension?
You can leave your money in your pension pot and withdraw as much or as little as you want and when you need, until your money runs out or you choose another option. The more money you take out each time the less money is left to provide future income.
Can I Take My Pension As A Lump Sum?
You can leave your money in your pension pot and take lump sums from it as and when you need, until your money runs out or you choose another option. You can decide when and how much to take out, including taking the whole pension as a lump sum. Any money left in your pension pot remains invested, which may give your pension pot a chance to grow, but it could go down in value too.
Each time you take a lump sum, normally a quarter (25%) of it is tax-free and the rest will be taxed as earnings. The more money you take out each time the less money is left to provide future income. This option is available in the Fidelity SIPP but if your pension is with another provider you may need to move into a new pension plan to do this.
Can I Continue To Make Pension Contributions After I Start Drawdown?
Yes, both you, your employer or anybody else can continue saving into your pension pot. However, once you have taken taxable money out of your pension pot using pension freedoms (i.e. more than the tax-free part), the amount you can pay in and receive tax relief on your annual allowance may be reduced. Any contributions you make after the age of 75 aren't eligible for tax relief.
Is Pension Drawdown Taxable?
You will usually have to pay tax on any regular income or lump sum you receive from a pension above any tax-free cash you’re entitled to, in the same way you pay tax on your earnings. How much you pay depends on your total income and the income tax rate(s) that apply to you.
For drawdown:
- 25% (a quarter) of your pot can normally be taken tax-free
- other withdrawals will be taxed whether it is taken as regular income or lump sums
Your pension provider will normally apply tax before the money is paid to you just like money received from an employer.
How Long Will Pension Drawdown Last?
How long your pension income will last will depend on how much you've saved over the course of your life, how much you withdraw each time you take income, how your investments perform over time and how long you need the money for (which could be 20 years or more).