What's Income Drawdown?

Your Retirement Plan Made Simpler

Wondering What You'll Do When You Retire? Income Drawdown Might Be the Answer You've Been Looking For. We've for the Secret!

What’s Income Drawdown

What’s Income Drawdown?

Wondering what you’ll do when you retire?

Income drawdown might be the way to go!

Income drawdown is an option for you to use your pension when you want to retire. Meaning, you leave your pension invested, and you cash in when needed. It’s the most popular alternative to buying an annuity.

What Are My Retirement Options?

So let’s begin.

A defined contribution pension opens up a variety of things you can do with your pension pot when you choose to retire:

  1. A lump sum of up to 25% can be cashed in without tax. An amount larger than this will be taxed.
  2. Buying an annuity is another option with the rest of your pension funds. A guarantees an income for a specific period.
  3. Otherwise, moving your funds into income drawdown is also a good option. Your pension funds will still be invested, and you can cash in taxable income.
Pension Income Drawdown VS. Annuity

Pension Income Drawdown VS. Annuity

Retirement Income Drawdown is a popular way to get income from your pension. With this choice, you can choose how much of the fund value (or ‘drawdown’) and when in retirement it’s taken as an annual payment while still leaving some funds invested with growth potential for later years.

On the other hand,

Annuities are another type of option that you may want to explore during your planning process if they’re available in your jurisdiction. You will typically have at least two types of annuity options – immediate or deferred – which differ according to whether withdrawals happen before age 75 or not. The best decision comes down to what kind of payout each individual prefers because there’s no right answer for everyone.

Moving Your Pension Into Drawdown

This is a type of income option for people who have an existing pension and want to withdraw some funds from it every year as they near retirement. It has the effect of dividing your fund value into smaller units, so when you choose how much money to take out each year, one unit represents £x per year.

But the thing is,

The final decision on whether to convert your pension savings into drawdown or invest them remains up to you, but speaking with someone qualified about which options are available will help make that choice easier. It’s important not just because doing the wrong thing could be financially disastrous, but also because you want to plan for the future in a way that feels right.

How Does Income Drawdown Work

How Does Income Drawdown Work?

Income drawdown1 funds get invested in multiple shares like cash and bonds. You can cash in money from the fund for your retirement.

All new income drawdown product is now ‘Flexi-access drawdown’ since April. This means that you can decide on the amount of money to cash in annually. However, you’ll have to pay income tax (after your first 25% tax-free withdrawal).

Guide to Drawdown

Many people are keen to make some money from their pension savings each year, but not all want or need the full amount. You can use drawdown for a type of income option if you have an existing pension and wish to withdraw funds on an annual basis as you near retirement.

The benefit is that it divides your fund value into smaller units so when you choose how much money to take out each year, one unit represents £x per year. This means less risk in case there’s a downturn during your lifetime with interest rates at historically low levels.

The Pros & Cons Of Income Drawdown

The Pros & Cons Of Income Drawdown

Pros and cons to income drawdown are a given.

Pro: it’s flexible. You can cash in a retirement income whenever you choose to. Better yet, if markets are buoyant, it will increase the value of your pension pot. Income drawdown is also amazing if annuity values are low. Plus, if you die before the age of 75, your pension can be inherited without your inheritors paying tax on it. Annuities 2 can’t be inherited.

Con: your pension can decrease in value if its investments perform badly. Your pension funds can also run dry if you cash in too much or if you live longer than you initially thought. On the other hand, an annuity guarantees a fixed income. Therefore, being much more anticipated

Always remember:

With income drawdown, you can decide to buy an annuity with the pension money that’s left.

Common Questions

What Does Income Drawdown Mean?

Is Drawdown A Good Idea?

How Do I Get A Pension Drawdown?

What Else Should I Consider When Getting My Pension?


It’s good to know that,

Income drawdown, although having pros and cons, can be quite a helpful tool to help you in your retirement! Your investment can keep on growing, and you can get a monthly income at the same time!

You may also like

Editorial Note: This content has been independently collected by the EveryInvestor advisor team and is offered on a non-advised basis. EveryInvestor may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.
Taylor Holt - 300x300

Written by
Taylor Holt
Estate Planning Expert

Taylor Is Our Resident Estate Planning Expert. He Knows That Everything Revolving Around Wills or Funeral Planning Can Be a Sensitive Subject That People Don’t Like to Discuss. But He Also Knows How Important It Is to Know All There Is to Know About It. Taylor Makes It His Mission to Spread Awareness About Estate Planning, and We Believe Everyinvestor Is the Best Platform to Do That.

Monique - 300x300

Written by
Monique Pittman
Pensions Expert

Monique Is Our Resident Pensions Expert. Many People Postpone Planning Out Their Pension, Thinking That Is Something They’ll Have to Worry Much Later in Life. Monique Knows How Important It Is to Start Planning Your Pension Early, and She Wants You to Know It Too!

What Is Income Drawdown

Written by
Lisa Schilling
Insurance Expert

Lisa Is Our Resident Insurance Expert. She Knows How Important It Is to Be Ready for Any Scenario, Especially When a Family Member Is Involved. Nobody Likes Being Found Unprepared in a Tough Situation! Lisa Can Find the Best Insurance to Cover Your Every Need, Present and Future.

Doyle Edwards - 300x300

Written by
Doyle Edwards
Mortgages Expert

Doyle Is Our Resident Mortgages Expert. He Comes From a Long Line of Financial Gurus, and It Truly Shows. Despite His Young Age, There Is No Question He Cannot Answer When It Comes to Mortgages, and His Ability to See Outside of the Box to Find the Best Mortgage Deals Is Truly Impressive.

jason stubbs 300x300 1.jpg

Written by
Jason Stubbs
Equity Release Expert

Jason Stubbs Is a Specialist in the Equity Release Sector. He Enjoys Helping Older People Who Are Struggling Financially Get Out From Under Financial Pressure.

rachel w.jpg

Rachel Wait
Personal Finance Journalist

Rachel is an experienced finance journalist and editor with a particular interest in personal finance and consumer affairs. She has vast experience writing about money issues, property, insurance, and consumer affairs, and you’ll find her articles regularly featured in top media and newspaper publications.

Reviewed by
Francis Hui
Senior Risk Manager

Having held various high-level roles across the industry, Francis is truly an expert in aiding UK citizens in their financial decisions and risk analysis. His unique insight and statistical knowledge make him the perfect person to help you take your financial future to the next level.
Mark Patterson

Written by
Mark Patterson
Mortgage Expert

Mark Patterson is a well-known expert in mortgages. He has been working as an expert for over 15 years, and he specializes in the UK mortgage market.
kath icon.png

Katherine Read
Consumer Affairs Writer

She writes on the topics of equity release, home reversion, and mortgages.

Nicola Date

Nicola Date
Writer & Journalist

Nicola is a financial writer for EveryInvestor and is passionate about the opportunities that equity release can open up for homeowners. Her extensive business experience and deep understanding of the industry means that she’s always up-to-date with the latest developments.