Money Advice Service

Income drawdown is a way of using your pension pot to provide you with a regular retirement income by reinvesting it in funds specifically designed and managed for this purpose. The income you get will vary depending on the fund’s performance. It isn’t guaranteed for life.

How income drawdown works

You can normally choose to take up to 25% (a quarter) of your pension pot as a tax-free lump sum.

You then move the rest into one or more funds that allow you to take an income at times to suit you.

Some people use it to take a regular income. The income you receive might be adjusted periodically depending on the performance of your investments.

There are two main types of income drawdown product:

  • Flexi-access drawdown – introduced from April 2015, where there is no limit on how much income you can choose to take from your drawdown funds
  • Capped drawdown – only available before 6 April 2015 and has limits on the income you can take out; if you are already in capped drawdown there are new rules about tax relief on future pension savings if you exceed your income cap

Flexi-access drawdown – find out more

Read our guide below to find out:

  • How flexi-access drawdown works
  • What you need to think about when deciding whether it’s right for you – including the tax implications and the effect on tax relief on future pension savings once you start taking an income
  • Where you can get help or advice to help you decide if it’s right for you
Using Flexi-access drawdown to take your pension.

Capped drawdown – new rules about pension tax relief

If you have already moved all or part of your pension pot into capped drawdown, read our guide to understand new rules from April 2015 that reduce how much tax relief you can get on future defined contribution pension savings if you exceed your income cap.

If you exceed the cap the rules for flexi-access drawdown will apply going forward.

Read our guide on Capped drawdown.

Combining income drawdown with products

Some product providers might offer retirement income products that combine income drawdown with other features that might offer guarantees about income and/or growth.

Income drawdown products are complex. We recommend you get financial advice before committing to one.

You can find FCA registered financial advisers who specialise in retirement planning in our Retirement adviser directory.

Your other retirement income options

Income drawdown is just one of several options available to you for taking your pension.

For an overview of all your options, and to find out where to get help and advice, see our guide Options for using your pension pot.

This article is provided by the Money Advice Service.