Pensions come with plenty of unfamiliar words, and one you might hear as retirement approaches is “drawdown”. It sounds technical, but the idea is straightforward once broken down.
Drawdown is a way of taking money from your pension while leaving the rest in your account. Instead of cashing in your whole pension pot or buying an annuity, you can choose to withdraw some of it as income or lump sums, while the remainder stays where it is. This approach gives you more control over how and when you access your savings.
When you move into drawdown, your pension is described as being “crystallised”. This means you have started to access it. Typically, you can take up to 25 percent of your pension as tax free cash. The remaining 75 percent is subject to income tax at your marginal tax rate. The rest of your pot remains in your account and its value can change over time. Pension values are not guaranteed and the value can go down as well as up. You can usually choose the amount and timing of withdrawals, which makes drawdown more flexible than some other options.
Drawdown is often discussed because it offers flexibility. Rather than receiving a fixed income, you have the ability to choose how much to take and when. For some, this feels more in line with their lifestyle and spending needs. It also allows any money left in your pension to continue working in the background, although the value can still fall as well as rise.
Pension App gives customers the option to request drawdown directly from their account. You can also check your daily pension value at any time, giving you clear visibility of your pot and how it changes over time. Our aim is to make pension management less stressful and more transparent.
Drawdown is simply one of the ways people can access their pension savings. It means taking money out while keeping the rest in place, with the freedom to decide the amounts and timings. Understanding this term makes it easier to follow pension conversations and to feel informed when looking ahead to retirement planning.
With pensions, your capital is at risk.