What is a Pension Drawdown?

A flexible income

A Pension Drawdown is a flexible way of taking money from your pension savings as and when you need to. You can use it to take up to 25% cash tax-free from your pension savings, and leave the rest invested until you need it.

If you're comfortable keeping some of your pension pot invested and can manage your pension savings to make sure you have enough money in retirement, pension drawdown could be a good choice for you. To help you do this, you'll need to review your pension savings regularly, so you know how much income you can take and make your savings last as long as you need them to.

 

 

  • Up to 25% of your pension pot can usually be taken tax-free.
  • You can take money out when it suits you.
  • Money left in your savings after you die can be passed on to your beneficiaries.
  • Leaving your money invested gives it more chance to grow.
  • You can keep paying into your pot, although a reduced annual allowance may apply.
  • You can use your pension savings to buy a guaranteed income in the future.
  • The income you take from your savings through pension drawdown is taxable.
  • The more money you take out, the quicker your pension savings will run out.
  • As with any investment, there's a chance that your pension savings could go down in value.
  • If you die age 75 or over, your remaining pot will be taxed at the receiving beneficiary’s marginal tax rate.
  • A reduced Annual Allowance will apply once you start to take an income from your pension (but won't apply if you're just taking tax-free cash). 
  • If you die before you reach age 75, any benefits paid will normally be free of income tax regardless of whether they're taken as a lump sum or regular income, provided they are within your remaining Lump Sum and Lump Sum Death Benefit Allowance.

To find out more about your Annual, Lump Sum and Lump Sum Death Benefits Allowances, please read our Taking Money from My Pension guide.

It's important to shop around before making a decision

When comparing what different providers can give you, take a look at all of the fees and charges. They could make a big difference to how far your pension savings go. Also, you may have preferential rates agreed by your employer on your behalf. You can find your Legal & General scheme charges in your pension maturity pack.

Fees and costs to look out for:

  • Platform, service or administration fees (either a percentage of your pension savings, a fixed fee, or both)
  • A separate fee for taking income
  • Fund management charges (a percentage of your pension savings)
  • A fixed fee each time you trade shares
  • A fee to transfer out in the event you decide to change provider

The fund management charges in drawdown can vastly differ from provider to provider and are sometimes hidden in the detail beyond the service and administration fees. They will also depend upon the investments you choose.

At Legal & General we only charge two of these fees: an administration fee (percentage) and a fund management charge.