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How pension drawdown works

How Pension Drawdown

Moving your pension into drawdown

You can move your pension into drawdown in one go, or move a bit in at a time. Up to 25% can normally be paid to you as tax-free cash, upfront, while the rest stays invested. You decide how much income to take (which is taxable), and when to take it.

You can apply for drawdown with your current pension provider (if they offer it), or transfer your pension to a drawdown provider like HL.

When deciding on the best drawdown provider for your needs, it’s important to check the quality of service, product features, fees, and value for money you’ll receive. You should also contact your existing provider to check you won’t lose any valuable benefits or need to pay high exit fees first.

Taking your tax-free cash

You can usually have up to 25% of your pension paid to you tax free.

If you move your entire pension into drawdown, you’ll receive all your tax-free cash in one lump sum payment.

If you choose to move your pension into drawdown in stages, then you’ll receive your tax-free cash in stages too (up to 25% of the portion you move each time).

Remember pension and tax rules can change, and the value of benefits will depend on your circumstances.

More about tax-free cash

Up to25%tax-free cash

Choosing your income in drawdown

You’re in control of how much income you take and when. You might decide you don’t need an income straight away, or even at all. You might just want to take your tax-free cash.

If you do want an income, you can choose to take regular withdrawals or just dip into the pot as and when you need to - it’s up to you.

Like all other pension income, it will be taxable and added to any other income you receive that same tax year. Be particularly aware of this if you’re planning on large withdrawals – don’t become a higher-rate tax payer by mistake.

Find out more about tax on withdrawals

Pension drawdown calculator

Drawdown income isn't secure, so you need to think carefully about how much you take. If you withdraw too much too soon, you might fall short in later years.

Our pension drawdown calculator could help you understand how long your drawdown plan might last.

Picking your drawdown investments

For lots of people, one of the biggest attractions of drawdown is the potential for income to continue growing. But there’s no guarantee as investments carry risk and you could get back less than you invest. Most investments also carry charges which could impact your pension value and income. It’s likely that your goals and plans for taking income will heavily influence how you decide to invest and what investments you choose.

With the HL Drawdown Self-Invested Personal Pension, you can:

  • Get personal advice and pay an adviser to choose investments for you
  • Consider basic drawdown investment pathways which link to specific income goals
  • Choose individual investments from our full range of funds and shares

If you’re looking for investment inspiration our drawdown investment ideas could help.

View the drawdown investment ideas

Holding cash

Keeping some planned income in cash might give you peace of mind, and means you can avoid selling your investments during a stock market downturn to generate cash for withdrawals. But cash can lose value over time in real terms, especially if interest rates are low and inflation is high. Holding large amounts of cash for long periods is unlikely to be a good long-term investment.

More on holding cash

Apply for drawdown with HL

Drawdown is available through our Self-Invested Personal Pension (SIPP). You can view our charges here.

How to apply

You should understand the risks and benefits of drawdown before you start, and find out how long your pension could last with our drawdown calculator.

When you're ready, you can choose how you want to apply.

Already in drawdown and looking for a better service?

Before transferring please check you won't lose valuable guarantees or need to pay high exit fees. If you choose to transfer your investments as they are, you won't be able to make any changes whilst the transfer goes through. If you transfer as cash you'll miss any market rises, but you won't be affected by any market falls either.

New to pension drawdown?

Take a look at our guide to drawdown to find out more about the risks and benefits, and how to get started.

Pension drawdown guide