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New Drawdown New Drawdown

How does drawdown work?

Discover 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 (bear in mind you don't have to move all your pension in one go), 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.

How does drawdown work

Tax-free cash

You can normally take up to 25% of the fund you use for drawdown as a tax-free lump sum. This cash must be taken at the start and cannot be taken at a later date.

Remaining pension

The rest of the pension remains invested as you choose.


A taxable income can be drawn from the remaining pension at any time. You choose how much income to take, if any, and can start, stop or vary the amount you take.

Features of drawdown in the HL SIPP

  • Choose from a wide range of investments including over 2,500 funds, portfolios managed by our experts, shares, investment trusts and cash.
  • Take income monthly, quarterly, half yearly, annually, as one-off lump sums or not at all.
  • Choose to manage the account yourself, take personal advice or a mixture of both.
  • 24 hour online access - monitor your account at any time and place investment instructions at the click of a button.
  • Pass anything that is left on to your heirs when you die. You can nominate your beneficiaries.

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

Choosing investments

Where you choose to invest may depend on your strategy for taking income - whether you’re investing for income, investing for growth or drawing capital from your pension.

A popular way to draw income is to only take 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'. Alternatively you could sell investments to create cash for withdrawals, known as 'drawing on capital' - this however will cause the value of your pension to fall over time if your withdrawals exceed the amount by which your pension grows.

How your investments perform will impact on how much income you can withdraw sustainably and how much is left in your pension to pass on.

Find out more about investing in drawdown

All investments carry risk and yields will vary over time. Investments can fall and rise in value and you could get back less than you invest. Drawdown income, unlike an annuity, is not secure. If you do not have any other income in retirement and your drawdown income runs out you may be left reliant on the State. If you are at all unsure if drawdown is suitable for your circumstances, we strongly suggest you seek advice.

Taking an income

  • The amount you withdraw is up to you - there is no minimum or maximum
  • You could simply take your tax-free cash and leave your remaining funds invested until you require an income.
  • Consider whether you need your drawdown fund to last for your whole retirement (which could last 30 years or more) and whether you want to pass your plan on to your spouse, partner or other loved ones.
  • Take into account how much income tax you will pay. Withdrawals will be added to any other income taken in the same tax year. Free factsheet: How are pension withdrawals taxed?
  • Income payments from the HL SIPP are made from the cash you have available on your drawdown account - you'll need to ensure you have enough settled cash to meet your required payments each time.
  • You might consider keeping a cash buffer of around one or two years' worth of income to reduce the risk of having to sell investments when stock markets have fallen in value.

Hargreaves Lansdown, like all drawdown providers, is required to deduct tax before a withdrawal is paid out. 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 HL 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 to drawdown

Anything else to consider?

  • Ensure you fully understand your options. Drawdown in the HL SIPP is offered without personal advice as standard. 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. Remember, Pension Wise the government’s free impartial service is available to help you understand your options. If you would like to explore a blend of secure and variable income, please have a look at our Retirement Planner.
  • 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 HL SIPP.
  • Investment scams do exist. Once money is drawn from a pension, you should be careful where you re-invest it. 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. You can find out more at