Please remember, SIPPs are aimed at people happy to make their own investment decisions. Investment value can go up or down and you could get back less than you invest. You can normally only access the money from age 55 (57 from 2028). We recommend seeking advice from a suitably qualified financial advisor before making any decisions. Pension and tax rules depend on your circumstances and may change in future.
What is drawdown and how does it work?
Drawdown, also known as flexi-access drawdown, is a flexible way of withdrawing money from your pension. You can take some or all of your pension this way.
You’ll start by moving your chosen amount into a drawdown pot. You may have seen this described as a drawdown arrangement, or crystallised fund.
The first 25% can be taken as a tax-free lump sum (up to a maximum of £268,275).
The rest of the drawdown pot is taxed like normal income when you withdraw it. You can:
- Set up regular withdrawals (e.g. monthly)
- Or take lump sums as and when you need them.
The money in your drawdown pot remains invested.
Drawdown: a simple example
Sarah has £400,000 in her pension. She chooses to move £100,000 into a drawdown pot, leaving £300,000 in her non-drawdown pot.
- She takes the first 25% (£25,000) as a tax-free lump sum.
- She decides to take the remaining £75,000 in monthly withdrawals of £1,000 - which are subject to income tax.
She can take more money from her pension at any time - even before her drawdown pot has run out.
For example, she could move more money into drawdown, or choose another option such as UFPLS or an annuity.
How to use drawdown with your ii SIPP
There are no charges for taking an income from your pension. It's all covered by your monthly SIPP fee.
Move funds into drawdown
You can move some or all of your SIPP into a drawdown pot and take a tax-free lump sum using your online account.
At the same time, you will be able to set up single or regular income withdrawals.
You will need to do this whether you are moving into drawdown for the first time, or moving further funds into drawdown. Learn more
Change your existing drawdown arrangement
If you want to set up, change or stop income withdrawals from an existing drawdown arrangement, this can be done using your online account.
Requesting a one-off payment from your drawdown arrangement
You can request a one-off taxable payment from an existing drawdown arrangement online. Learn more
This is only available if you have already moved into capped drawdown. You can have a mix of capped and flexi-access drawdown pots in your SIPP.
If you would like to move further funds into capped drawdown, you will need to download and complete a Taking Pension Benefits Capped form.
If you want to set up, change or stop income withdrawals from an existing capped drawdown pot, complete a 'Starting or amending income payments for capped drawdown' form.
Investing in drawdown
When you move funds into drawdown with your ii SIPP, you will need to decide how you want your fund to be invested in the future.
These are selected by our experts to match four common goals people have when moving funds into drawdown. They also offer excellent value for money.
Learn more about drawdown
How is drawdown income taxed?
The first 25% of each amount moved into drawdown can be taken as a tax-free lump sum (up to a maximum of £268,275). The remaining amount is taxed like a normal income when you receive it:
- If you have no income from any other sources, the first £12,570 per year is tax-free.
- 20% on annual income between £12,570 and £50,270.
- 40% on annual income between £50,270 to £125,140.
- 45% on annual income above £125,140.
Important: Month 1 emergency tax code
When you first take a taxable income from your pension, you may be assigned a 'Month 1' emergency tax code. This could result in a tax overpayment in the first month. If so, you can claim this back from HMRC.
One of the advantages of drawdown is that you can choose how much income you want to withdraw at any time.
You can choose to make regular withdrawals, or take larger sums as and when you need them.
As with any other pension, any income you take will be subject to income tax (not including the initial tax-free lump sum). This may include higher-rate tax if you go over the threshold in the tax year.
If you die before the age of 75, the remaining pension can be passed on tax-free to any beneficiary, as a lump sum or drawdown pension.
If you die after the age of 75:
- The pension can be drawn down or passed on at the beneficiary's marginal tax rate
- Alternatively, it can be paid into a trust as a lump sum, minus a 45% tax charge.
Yes, you can continue to contribute - although your annual allowance is reduced to £10,000 once you start taking a taxable income from your pension.
This is known as the Money Purchase Annual Allowance (MPAA).
You must be at least 55 years old to apply for pension drawdown. From 2028, the age increases to 57.
As long as you are over 55, you do not have to be retired to begin receiving drawdown income. For example, you can use it to supplement your income if you wish to go into semi-retirement.
If your SIPP is partially crystallised so that you hold both drawdown and non-drawdown funds, your SIPP fund will be notionally split between the drawdown and non-drawdown part, so that a value is assigned to each part without physically assigning specific assets to each part.
How can Pension Wise help?
If you have a defined contribution pension scheme and are 50 or over, then you can access free, impartial guidance on your pension options by booking a face to face or telephone appointment with Pension Wise, a service from MoneyHelper.
If you are under 50, you can still access free, impartial help and information about your pensions from MoneyHelper.