Pension Drawdown Explained | Flexible Retirement Income

Are you approaching retirement age and wondering how to access your pension savings? A flexible-access drawdown, often known simply as ‘drawdown’, could be the answer.

What is Flexible Income Drawdown?

Drawdown is a popular method of accessing your pension savings that offers flexibility and control over your income. It allows you to keep your pension savings invested while withdrawing cash as and when you need it.

Depending on your objectives, you could take a lump sum or set up regular withdrawals, adjusting your income whenever necessary. So, unlike fixed options like annuities, drawdown offers flexibility to adapt to your changing needs.

See it in action

How Do You Know if Flexible Income Drawdown is
For You?

At My Pension Expert, we take the time to understand your circumstances so we can provide personalised advice that puts you in the best possible position at retirement. With no obligation, our pension expert’s priority is to make sure you have confidence in the decisions you make regarding your pension, without needing in-person consultations.

The flexible income drawdown approach offers greater control, tax efficiency, and potential for growth compared to traditional annuities, allowing you to adapt your income to your lifestyle.

As your money remains invested, its value can fluctuate, meaning there is some level of risk involved. No two individuals are the same, what might work for someone else may not work for you so that’s why it’s essential to seek advice from our financial advisers to help you determine if flexible income drawdown aligns with your monetary goals and risk tolerance.

Is drawdown better than an annuity?

Both drawdown and annuities have their benefits; we wouldn’t say either option is better than the other.

What works for you depends entirely on your circumstances. Factors like your spending habits, pension value, desired lifestyle, and tax situation will influence what’s the best choice for you.

Choose Flexible Income Drawdown if:

1. You want control over your withdrawals

2. Are keen to explore investment growth potential

3. You want the ability to pass on funds to loved ones

However, you must be comfortable with investment risk and managing your money
carefully to ensure it lasts throughout retirement.

Choose an Annuity if:

1.You prefer a guaranteed, stable income for life

2.Don’t want any investment risks

3.You value certainty and security over flexibility

We’d recommend speaking with one of our advisers to discuss which options could help you reach your retirement goals.

Benefits of flexible income drawdown

Flexibility: Adjust your plan as needed.
Change your income level or frequency,
switch up your investment strategy, or
purchase an annuity later.

Potential Growth: Keep funds invested
for potential growth throughout your
plan.

Legacy Planning: Passing on a flexible
income drawdown offers versatility
your beneficiaries may take it as a lump
sum, set up an annuity, or leave it
invested

Income drawdown considerations

Investment Risk: As with all
investments, capital invested in
drawdown is at risk. Your financial
adviser will work with you to find an
appropriate portfolio for your goals and
circumstances.

Tax Implications: Income withdrawals
are subject to tax, affecting your overall
financial planning.

Reviewing your options: An annuity
could be a better solution if you’d prefer
a guaranteed or fixed income without
investment risk.

Steps to set up your drawdown

(Spoiler alert: we can support you with all of it! You can find out more about the ways we help you keep things simple here)

1. Identify your position

You probably have more than one pension pot, so round them all up to get an overview of your total pension fund value and assess any safeguarded benefits you may have. You can find lost pensions with the help of the government’s pension tracing service.

2. Choose a provider

Shop around to find a provider offering the options most suited to your needs, as features, charges, and investment options can differ between plans.

3. Select your investments

Most providers will offer a range of model portfolios, so selecting one that suits your objectives and considers how comfortable you are with risk is vital.

4. Decide your income

Determine the level of income you want to take from your pension savings. It will depend on factors such as your age, investment performance, spending, and the value of your pension pot. It’s important to choose a sustainable income that meets your needs over the long term, although you can alter it at any time.

5. Complete the paperwork

You’ll need to complete an application to set up your drawdown plan. These forms typically request information about your pension savings, retirement plans, and investment preferences.

6. Transfer funds

Once your new provider has confirmed that they have all the information required, they’ll start the transfer. Transfers often take between four and twelve weeks but can take longer. We recommend starting the process as early as possible so that you can access your money when you need it.

7. Monitor investments

Once everything is set up, you should regularly review your investment performance and adjust your income accordingly. If your investments perform well, you may be able to take a higher income in future years. However, if they perform poorly, you may need to reduce your income to avoid running out of money.

With My Pension Expert’s ongoing advice service, we review all of this for you, with annual financial health checks that make sure you stay on track.

8. Understand taxation

At My Pension Expert, we advise you on which option is most suitable for your unique circumstances. We’ll make sure you clearly understand any risks and charges that apply so that you can make an informed decision.

We also manage the transfer process, with regular updates from our client support team, and can even help you manage and adapt your flexible income drawdown plan moving forward with the help of our ongoing pension advice service. So, with My Pension Expert, you can future proof your retirement strategy.

Woman modelling a pot in clay in her workshop

Tax-free cash

You can take a lump sum of up to 25% of your pension fund value in one go as tax-free cash. Or, you could choose to have 25% tax-free on each withdrawal. Your adviser will help you to understand how this could affect you.

Use your investment growth

When using investment growth, you only draw an income for the amount your fund has grown. So, say you have a fund value of £50,000 which increases by 5% over the year. In this scenario, you would withdraw this 5%, or £2,500, as income.

Using investment growth for your income removes the risk of your fund running out too early. However, it does mean that your income would be variable and dependent on growth.

Draw funds from capital

This lets you take money from your fund as needed. Your fund manager may dip into cash reserves or sell some of the investments that make up your portfolio, making sure it stays balanced to meet your requirements.

This lets you take a higher income, but you may run out of funds sooner. When choosing how much income to take, you should consider how long you need the fund to last so you don’t run out of money.

Don’t take any regular income

You may choose not to take a regular income, leaving the whole fund invested to maximise your potential investment growth.

Drawdown’s flexibility allows you to draw money from the fund as required, such as a one-off withdrawal, or switch on regular income payments later. It’s wise to discuss any changes to your income with an adviser, who will help you to understand how this may affect how long your funds will last.

Next steps

Talk to a member of our team today to begin your retirement journey with confidence. There’s no obligation, just personalised advice to unlock your pension potential.

Want more information but not ready to get in touch? Our drawdown calculator can give you an idea of what a sustainable monthly income could look like for you.

Frequently Asked Questions

Need another question answering? Get in touch with us today.

What happens if my pension pot runs out?

f your pension pot runs out, you may need to rely on other sources of income, such as the State Pension or personal savings, to support your retirement.

Can I switch from Flexible Income Drawdown to an annuity?

Yes, you can switch from Flexible Income Drawdown to an annuity at any time,
giving you the option to secure a guaranteed income for life.

Can I pass on my pension via Flexible Income Drawdown?

Yes, with Flexible Income Drawdown, you can usually pass on any remaining pension funds to your beneficiaries, often with tax advantages depending on your age at death.

Can I still contribute to my pension after starting F.I.D?

Yes, you can still contribute to your pension after starting Flexible IncomeDrawdown, but your annual allowance may be reduced.