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Last reviewed: August 2026
Drawdown means leaving your pension invested and taking income from it as you choose, rather than exchanging it for a guaranteed income. It is the route most people now take, and it suits a great many people. It does not suit everybody.
You take your tax-free cash, usually up to 25%, subject to the lump sum allowance, and move the rest into a drawdown fund. That money stays invested, and you decide how much income to take and when. There is no cap on the amount you can withdraw.
You control the timing. Income can be regular, occasional, or nothing at all in a year when you do not need it. Someone with other income can leave the pension alone and let it work.
You control the tax. Because you decide how much taxable income to take each year, you can keep yourself below a threshold that would otherwise cost you. Over a long retirement this is worth a great deal, and it is the single biggest advantage over a fixed annuity income.
The money stays invested in a tax-efficient environment, with the potential to grow.
You keep your options. You can buy an annuity later with some or all of what is left. Annuity rates generally improve with age, so deferring is not necessarily a loss.
What is left passes to your family. With an annuity, income usually stops on death unless you have paid for a guarantee or a spouse’s pension.
Your money is at risk. The fund is invested, and it can fall. An annuity pays what it promises regardless of what markets do.
Withdrawals in a falling market do lasting damage. Taking income while the fund is down means selling more units to produce the same money, and the fund may never recover. This is the single most common way drawdown goes wrong.
It can run out. Nobody knows how long they will live. An annuity transfers that risk to an insurer; in drawdown, you keep it.
It needs managing. A drawdown plan is not a decision you make once. It needs reviewing as markets, tax rules and your circumstances change.
Taking taxable income restricts future pension contributions. Once you draw more than your tax-free cash, the money purchase annual allowance limits what you can pay in to £10,000 a year.
This is important, and it reverses a long-standing argument for drawdown.
Until now, unused pension funds have generally passed to your family outside your estate, which made drawdown attractive for anyone wanting to leave money behind. From 6 April 2027, most unused pension funds count towards your estate for inheritance tax.
Anything passing to a surviving spouse or civil partner remains exempt. But where death occurs after age 75, beneficiaries also pay income tax on what they draw, so the same money can be taxed twice.
For a good number of people this changes which pot to spend first. The pension used to be the one to preserve; for many families it no longer is.
Read our full explanation of the April 2027 changes
It is not necessarily a choice between the two. Many people are best served by a combination, an annuity covering essential spending, so the bills are guaranteed whatever markets do, with the rest in drawdown for flexibility.
Annuity rates have been considerably more attractive in recent years than in the decade before, so an annuity deserves a fair hearing rather than being dismissed out of hand.
If your pension is your only income and you have no capacity to absorb a fall in its value, the flexibility is not worth the risk. If the idea of your income depending on markets would genuinely worry you, that matters too, a plan you cannot sleep with is not a good plan.
Figures correct for the 2026/27 tax year. This article is for general information and does not constitute personal advice. The value of investments can fall as well as rise and you may get back less than you invested. Tax treatment depends on your individual circumstances and may be subject to change in future.
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Lee Barton (Leicester) | Ian Laker (Tamworth) | Chris Wood (Coventry)
Bosworth Wealth Management is authorised and regulated by the Financial Conduct Authority. FCA firm reference number 805232.
Our advisers are based in Leicester, Tamworth, Coventry and King’s Lynn, and we work with clients across the UK.
The value of investments can fall as well as rise and you may get back less than you invested. Tax treatment depends on your individual circumstances and may be subject to change in future.