Pension drawdown: flexible access to your retirement savings in the UK
Pension drawdown allows you to shape your retirement around your lifestyle. Most of the time allows you to be flexible and take out the amount you want as and when you need.
Key takeaway
A drawdown pension allows you to flexibly access your retirement savings as and when you need, whilst keeping the rest invested for growth potential. However, with flexibility comes risk and there’s a chance you could lose money, so it’s worth monitoring your investments and withdrawals closely.
How to set up a drawdown pension with us
With us, you can access a drawdown pension with our SIPP. This allows you to move some, or all your money into a flexi-access drawdown plan where there’s no limit on the amount of annual income you can take from pension, other than the total value of the fund itself.
1. Learn more about drawdown pensions
Learn about drawdown pension rules and consider whether it suits your risk tolerance and retirement goals
2. Open an account with us
Open a share dealing account online and add your SIPP through the My IG Dashboard.
3. Set up your SIPP with Options UK and fund your account
We’ll activate your SIPP account once you’ve received an invite from Options UK and set up an account on their website. After that, you’re free to transfer or fund your SIPP.
4. Choose your investments and review them regularly
Choose from a wide range of shares, ETFs, funds and portfolios to invest in
5. Contact us directly to request a flexi-access drawdown SIPP
Call 0800 195 3100 or send us an email newaccounts.uk@ig.com between 8am and 6pm (UK time) on weekdays to get set up
What is a drawdown pension and how does it work?
A drawdown pension is a type of pension you can set up once you’ve reached retirement age (55, but rising to 57 in 2028), that allows you to flexibly access your pension as and when you need, whilst leaving what’s left invested. This means your remaining pension may continue growing in line with market performance, although there’s always the risk it could fall in value too.
In most cases, you can take 25% of your pension tax free. This can either be withdrawn as a lump sum or taken out as and when you need. The remaining 75% can be invested in whatever assets you choose and will be taxable as earnings in the same tax year you withdraw them.
To set up a drawdown pension, you’ll need to have a defined contribution pension. This could be either a self-invested personal pension (SIPP), workplace, or personal pension which gives you the flexibility to decide how to invest your money and when to take income.
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Drawdown vs annuity
When it comes to receiving an income from your pension, there are two main options to consider, pension drawdown and annuities. Both provide access to your retirement savings, but they work in different ways. The most suitable option for you will depend on your flexibility, risk tolerance and how much you control you’d like over your money.
| Feature | Drawdown pension | Annuity pension |
|---|---|---|
| How it works | Move your money into a drawdown pension from when you reach retirement age | Buy an annuity with some or all or your pension savings and receive guaranteed income for life or a fixed amount of time |
| Income flexibility | Very flexible- you can take out money as and when you need it | Fixed- once it’s set up, the amount of income usually can’t be changed |
| Investment growth | Your remaining pension stays invested, and its value fluctuates with the market | Your income is fixed and won’t be impacted by market performance |
| Tax treatment | 25% can be taken tax-free. The rest is taxed as income | 25% can be taken tax-free. The rest is taxed as income |
| Risk |
Higher risk- value can go up or down depending on the market. There’s the risk your pot could run out if the market turns against you or you withdraw too much too soon |
Lower risk- regardless of market changes, payments are guaranteed for the duration of the annuity |
If you want a balance between the flexibility and growth potential of a drawdown pension and the security of an annuity pension, it’s possible to take a blended approach where part of your pension is invested into a drawdown and the remainder is used to purchase an annuity. This allows for peace of mind as your basic expenses can be covered with an annuity, whilst still allowing room for growth and flexibility.
Pension drawdown pros and cons
Pros:
- Growth potential – your remaining pension stays invested, and its value can grow with the market*
- Flexible access – you can withdraw money as and when you need it and adjust your income over time
- Control – you can decide how much of your pension is invested, what it’s invested in and when to make withdrawals
- Inheritance options – any funds left after you die can usually be passed onto your beneficiaries**
Cons:
- Investment risk – your pension could decrease in value if the market turns against you and you could lose money
- Ongoing management – you’ll need to regularly review your investments and make withdrawals
- No guaranteed income – payments aren’t fixed, and the value of your pension will fluctuate with the market so there’s always the risk you could lose money
- Risk of running out of money – if not managed correctly, it’s possible that too much is taken too soon and there’s not enough money to last you your whole retirement
* An increase in values is never gauranteed. Financial markets are volatile and it's possible your pension could decrease in value and you could lose money.
**Regulations are subject to change
Quick fact
You can usually take up to 25% of your pension tax free when you move into drawdown, but this depends on individual circumstances and tax laws are subject to change.
Pension drawdown pros and cons
Pros:
- Growth potential – your remaining pension stays invested, and its value can grow with the market2
- Flexible access – you can withdraw money as and when you need it and adjust your income over time
- Control – you can decide how much of your pension is invested, what it’s invested in and when to make withdrawals
- Inheritance options – any funds left after you die can usually be passed onto your beneficiaries3
Cons:
- Investment risk – your pension could decrease in value if the market turns against you and you could lose money
- Ongoing management – you’ll need to regularly review your investments and make withdrawals
- No guaranteed income – payments aren’t fixed, and the value of your pension will fluctuate with the market so there’s always the risk you could lose money
- Risk of running out of money – if not managed correctly, it’s possible that too much is taken too soon and there’s not enough money to last you your whole retirement
Pension drawdown tips
- Consider the rate and which you withdraw. Taking too much too soon could mean your fund runs out
- Monitor your investments regularly and keep track of market movements
- Consider tax planning. Understanding how withdrawals may impact your tax position could help avoid unnecessary tax and minimise the risk of running out of money
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Important to know
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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