Pension drawdown is a retirement option that keeps a pension pot invested while the holder takes variable income or lump sums directly from it. The remaining money stays exposed to investment markets, so its value can rise or fall over time.
In one line: Pension drawdown leaves the pot invested and lets the holder take flexible withdrawals rather than buying a fixed income.
How pension drawdown works
Drawdown, formally flexi-access drawdown, is available from age 55 (rising to 57 from April 2028) and is regulated by the FCA. Up to 25% of the pot can usually be taken tax-free, with later withdrawals taxed as income.
For example, a 200,000 GBP pot left invested and drawn at 5,000 GBP a quarter provides 20,000 GBP a year. If investments grow 4% but withdrawals exceed that, the capital gradually shrinks and may not last.
Because the pot stays invested, returns and charges both matter. Taking too much in poor market years, known as sequencing risk, can permanently reduce what remains.
Drawdown vs an annuity
Drawdown offers flexibility and the chance of growth, plus the ability to pass remaining funds to beneficiaries. The holder bears the investment and longevity risk, so income is never guaranteed.
An annuity removes that risk by fixing the income for life but surrenders access to the capital. The two are not mutually exclusive and can be combined.
Primary source: FCA: Income drawdown