What is a pension drawdown?

Retirement is your time to finally enjoy the lifestyle you’ve worked hard for. To make the most of it, you should take some time to consider the pension options available to you. One option is called a “pension drawdown”, something which opens a world of opportunity – and risk – to your financial future.

In this guide, we’ll explain the pension drawdown so you can understand its key aspects – how it works, its pros and cons, and how to get started with your own – so you can make the best decisions for your financial future.

This guide covers:

• What are pension drawdowns?
• Getting started: eligibility and application
• Is pension drawdown right for you?
• Safeguard your retirement with Spencer Churchill Claims Advice

What is a pension drawdown?

Pension drawdown is a retirement option that allows you to withdraw money from your defined contribution pension while keeping the rest invested. With a drawdown, you can access up to 25% of your pension as a tax-free lump sum while the rest potentially grows in an investment pot.

Pension drawdowns offer flexibility, as you can control how much and when you withdraw funds, but they’re still risky as investments can go up and down.

How do I apply for a pension drawdown?

If you’re interested in pension drawdown, it’s fairly simple to get started.

You just need to be at least 55 years old and have a Defined Contribution pension. You can set one up with your current pension provider or transfer your pension to a new provider if you prefer.

Whichever you choose, you can take 25% as a tax-free lump up front. After that, any extra withdrawals will be subject to income tax. You’ll also need to think about where to invest the remaining 75% of your pension pot. Choosing investments that suit your retirement goals and risk tolerance is key to making your money last.

Should I choose a pension drawdown?

Pension drawdown can be a great option for people who want flexibility and control over their retirement income, but that’s not the only thing you should consider. Let’s take a closer look at all the pros and cons of a pension drawdown.

Pros of a pension drawdown

• Flexibility – You’re in control of when and how much you withdraw, so you can adjust to your financial needs over time.
• Tax-free lump sum – Take up to 25% of your pension tax-free to give you a boost at the start of your retirement.
• Potential growth – Investing allows your money to grow over time and helps your savings keep up with inflation.

Cons of a pension drawdown

• Investment risk – The value of investments ebbs and flows, so there’s no guarantee your pension will last.
• Managing investments – You’re responsible for choosing and managing investments, which can be tough and may require financial knowledge.
• Risk of running out – If you withdraw too much too soon, you could run out of your retirement savings entirely.
• Lack of guaranteed income – Drawdown doesn’t provide a set income, so it may not suit those who prefer financial security.

Protect your retirement with Spencer Churchill Claims Advice

Deciding on a pension drawdown is a big step, so it’s natural to feel unsure – especially if you feel you’ve been mis-sold or have made the wrong decision for your pension. That’s where Spencer Churchill Claims Advice comes in.

We help people like you who may have been mis-sold on their pension, including those on pension drawdowns that weren’t fully explained or suited to your needs. We also handle mis sold SIPP claims.