Pension Drawdown Explained: UK Guide

By Tom Ashby, Editor · Updated 11 October 2026

5 min read · Facts checked against official sources on 11 October 2026

In short

Drawdown keeps your pension invested while you take an income from it, as and when you choose.
You can usually take up to 25% tax-free, up to £268,275 in total. The rest is taxed as income.
Taking taxable income cuts what you can pay into pensions with tax relief to £10,000 a year. Tax-free cash alone doesn't.
The money can run out if you take too much or markets fall early on. An annuity gives a guaranteed income instead.
Most people can start from 55, rising to 57 on 6 April 2028. Pension Wise gives free guidance from 50.

Usually tax-free, up to £268,275 in total: 25%
Money purchase annual allowance once you take taxable income: £10,000
Minimum pension age from 6 April 2028 (55 now): 57
Unused pensions usually count for inheritance tax: 6 April 2027

On this page

What are your options when you take your pension?
How does pension drawdown work?
How is drawdown taxed?
What is the money purchase annual allowance?
How long will your pension last?
Drawdown or an annuity?
What happens to your drawdown pot when you die?
Where to get help
Related guides
Sources

Pension drawdown, or flexi-access drawdown, lets you take money from a defined contribution pension while leaving the rest invested. You choose how much to take and when, and you can change it as your needs change. That flexibility is the attraction. The risk is that, unlike an annuity or the State Pension, nothing guarantees the money will last as long as you do. This guide explains how drawdown works, how it’s taxed and what to weigh up before you start.

What are your options when you take your pension?

From the minimum pension age, you can usually take up to 25% of a defined contribution pension tax-free and then:

move the rest into drawdown, keeping it invested and taking an income when you want
buy an annuity, which pays a guaranteed income, often for life
take lump sums as you go, where a quarter of each payment is usually tax-free and the rest is taxed (known as an uncrystallised funds pension lump sum)
take it all at once, paying income tax on everything above the tax-free part in that year
combine these, for example drawdown now and an annuity later

The minimum pension age is 55, rising to 57 from 6 April 2028 under the Finance Act 2022, unless you have a protected earlier pension age.

How does pension drawdown work?

When you move money into drawdown, you can take your tax-free cash, and the rest stays invested in funds you or your provider choose. You then withdraw income from it, regularly or as one-off amounts. What’s left can grow, or fall, with the investments.

If you move into drawdown without taking financial advice, the FCA requires your provider to offer, or point you to, four ready-made investment pathways, matched to what you plan to do with the money in the next five years: leave it untouched, buy an annuity, take a long-term income, or take it all out.

How is drawdown taxed?

Tax-free cash. You can usually take up to 25% of your pension tax-free, up to a lifetime limit of £268,275 (the lump sum allowance), unless you have protection for more.
Everything else is taxed as income. Withdrawals are added to your other income for the year, including any State Pension, and taxed at your income tax rates.
Emergency tax on the first payment. Your first withdrawal is often taxed as if you’d take the same amount every month, so you may pay too much at first. HMRC has refund forms: P55 for a partial withdrawal, P53Z if you’ve taken the whole pot, and P50Z if you’ve also stopped work.

Example: someone with £12,548 of State Pension takes £15,000 from drawdown, having already taken their tax-free cash. Their total income of £27,548 is £14,978 over the £12,570 Personal Allowance, so they pay about £2,996 in income tax at 20% in England, Wales or Northern Ireland. If instead they hadn’t taken their tax-free cash and a quarter of each withdrawal was tax-free, only £11,250 would be taxable, and the tax would be about £2,246.

Our pension drawdown calculator works this out for your own figures, and shows how long your money might last.

What is the money purchase annual allowance?

Once you take taxable income from a defined contribution pension, for example your first drawdown income or a lump sum that’s partly taxable, the amount you can pay into defined contribution pensions with tax relief usually falls from £60,000 to £10,000 a year. Under HMRC’s rules, taking only your tax-free cash doesn’t trigger it, and nor does cashing in a small pot of £10,000 or less. This matters if you’re still working and paying into a pension, so consider it before taking any taxable money.

How long will your pension last?

That depends on how much you take, how your investments perform, charges and how long you live. Three risks matter most:

Taking too much. A high income early on can exhaust the pot while you still need it.
Falls in the early years. A market fall soon after you start does more damage than the same fall later, because you’re selling investments while prices are low to pay your income.
Living longer than expected. Many people underestimate how long they’ll live. The ONS life expectancy calculator gives the average for your age and sex, and the chance of reaching 100.

Example (from our calculator): a £250,000 pension from age 60, growing 4% a year before 0.5% charges, with income rising 2% a year to keep pace with prices, lasts until about 85 at £12,000 a year, 79 at £15,000 and 74 at £20,000. These are illustrations with steady growth; real returns vary.

People manage these risks in different ways: taking a lower income at first, keeping a cash buffer to avoid selling after falls, reviewing withdrawals every year, or using part of the pension to buy an annuity that covers essential bills.

Drawdown or an annuity?

	Drawdown	Lifetime annuity
Income	Flexible; you choose	Fixed (or rising), guaranteed for life
Investment risk	Yours	The provider’s
Can run out?	Yes	No
On death	Remaining pot can pass to beneficiaries	Usually stops, unless you choose a guarantee or joint-life option

You don’t have to choose once and for all: many people start in drawdown and buy an annuity later. MoneyHelper says you should always compare annuity providers, including your existing one, rather than accepting the first offer.

What happens to your drawdown pot when you die?

Anything left can usually go to the people you’ve nominated. If you die before 75, beneficiaries can usually take it tax-free, as long as it’s paid out or moved into their own drawdown within two years of the provider learning of the death. Lump sums above your lump sum and death benefit allowance are taxable. If you die at 75 or over, they pay income tax on what they take. From 6 April 2027, unused pension funds will also usually count towards your estate for inheritance tax, under the Finance Act 2026, with relief so beneficiaries can deduct the inheritance tax paid from their taxable pension income. Pensions left to a spouse, civil partner or charity stay exempt.

Where to get help

If you’re 50 or over, Pension Wise from MoneyHelper offers a free, impartial appointment to talk through your options. It’s backed by the government, and there’s no minimum pot size. For a personal recommendation, you need a regulated financial adviser. Our guides to SIPPs and workplace pensions explain how the pension itself works.

Sources

Our guides are general information and education, not personal financial advice. If you are unsure whether an investment is right for you, speak to a regulated financial adviser. Capital at risk. Investments can fall as well as rise, and you may get back less than you put in.