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How does it work?

New Drawdown New Drawdown

Why choose New Drawdown?

Discover how drawdown works, the risks, the responsibilities and the benefits.

Request your free guide to drawdown

Important: Drawdown is a more complex option than an annuity. What you do with your pension is an important decision: you could run out of money. Make sure you understand your options and check they are suitable for your circumstances: take appropriate advice or guidance if you're unsure. Our service is not personal advice but we can offer advice if you specifically request this. The Government's free Pension Wise service can also help - more on Pension Wise.

Drawdown allows investors more flexibility with their pensions. Each time you move money into drawdown, up to 25% can be taken as a tax-free lump sum. The remainder stays invested and taxable income can be drawn directly from the pension as you wish.

Features of drawdown

  • You can take income directly from your pension using drawdown
  • You can take income monthly, annually, as one-off lump sums, or even not at all
  • Your drawdown pension might continue to grow in value which could allow you to take a higher income in future, although it could also fall
  • You can choose where to invest and what income to take
  • You can pass anything that is left on to your heirs when you die
  • Important: drawdown income is not secure and could run out if you take too much out, you live longer than expected or your investments do not perform as you hope

Use our drawdown calculator to work out how much income you might be able to sustainably withdraw

What income can I take - what are the options?

Income payments are made from the cash you have available on your Vantage SIPP drawdown account so you’ll need to ensure you have enough cash to meet your required payments.

There are no minimum or maximum withdrawal limits for drawdown, so you could simply take your tax-free cash and leave your remaining funds invested until you require an income. When you do decide to draw an income you choose the amount to take.

One way to draw income from a pension is to take only the income generated by the underlying investments such as the dividends or income from shares, funds or corporate bonds. This is known as taking the 'natural yield'.

Selling investments to create cash for withdrawals is known as 'drawing on capital'. Using this method, your pension will fall over time if your withdrawals exceed the amount by which your pension grows. This can become a particular problem if investment performance is poor - you may need to reduce the level of income you take or stop taking income altogether.

Find out more about investment ideas and income strategies

When making your choice you need to consider:

  • Income is not secure and could run out if investments don't perform as you hope
  • How much you take out - too much and it might run out
  • How long the pension might need to last - i.e. how long you will live

All investments carry risk and yields will vary over time. Investments rise and fall in value so your pension could still be worth less in future than it is today, and in the worst case it could be worth nothing at all. This means if you have no other retirement income, you will be left reliant on the State. Income is not guaranteed.

You might consider keeping a cash buffer of around two years' worth of income to reduce the risk of having to sell investments when stock markets have fallen in value.

If you are unsure if drawdown is right for you, we strongly suggest you seek advice.

Request your free guide to drawdown

What about tax?

Drawdown providers are required to deduct tax, where applicable, before the withdrawals are paid out.

Withdrawals will be added to your income in that tax year and subject to any further income tax. Large withdrawals could result in you being pushed into a higher tax bracket.

When you first take a taxable lump sum or income from a pension, it is likely that emergency tax will be deducted. After the first payment is made from the Vantage SIPP HMRC should then provide an updated tax code directly to Hargreaves Lansdown to be used for any future payments. Any over-paid or under-paid tax should be settled with HMRC by you directly. The tax you pay will depend on your circumstances and tax rules can change in the future.

Request your free guide on how to save tax in retirement

Anything else to consider?

  • Ensure you fully understand your options. Drawdown in the Vantage SIPP is offered without advice. Due to the high risk and complexity, if you are at all uncertain about its suitability for your circumstances, we strongly suggest you contact us for advice. You should carefully consider your overall financial circumstances and other retirement goals or plans when making your decision. If you would like to explore a blend of secure and variable income, please have a look at our new Retirement Planner.
  • Make sure you compare your options. Shopping around to find the most suitable option for your circumstance is important. Compare alternatives to drawdown.
  • Consider the charges you might pay. Most investments carry charges, and the income you ultimately receive depends on the returns from investments, less any charges. Therefore it is important you consider the charges of your drawdown plan as well as those of any of the other options you are considering. See the charges of the Vantage SIPP
  • Withdrawing money from your pension may reduce any means tested benefits you receive. Withdrawals from your pension may count towards capital or income for the assessment of any means tested benefits. You can find more details about means tested benefits at www.gov.uk/benefits-calculators.
  • New pension rules make investment scams more likely. Once money is drawn from a pension, you should be careful where you re-invest it. Investment scams exist. These scams tend to be carried out by firms which are not regulated and warning signs include cold calling or texting, the promise of unique or unusual opportunities offering quick, easy profits or something which seems too good to be true.
  • Creditors are more likely to be able to call on any money you withdraw from your pension. Any money held in a pension may be protected from your creditors if you are in debt and they take action against you. Once you take it out any protection could be lost.

Request your free guide to drawdown

Important information

Drawdown is a more complex option than an annuity. What you do with your pension is an important decision: you could run out of money. Make sure you understand your options and check they are suitable for your circumstances: take appropriate advice or guidance if you're unsure. Our service is not personal advice but we can offer advice if you specifically request this. The Government's free Pension Wise service can also help - more on Pension Wise.

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