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What is pension drawdown and is it right for you?

By July 10, 2025No Comments

When you retire, one of the biggest questions you’ll face is, ‘How do I turn my pension savings into money I can actually spend?’ One option is pension drawdown, and in this blog, we’ll break down exactly what that means, and how you can start accessing your savings to create a flexible income that suits your retirement lifestyle.

What’s pension drawdown?

Put simply, pension drawdown lets you take money from your pot as and when you need it, while the rest stays invested. Your pension has the opportunity to continue growing, subject to investment performance, which can go down as well as up.

You can usually take up to 25% of your pension pot completely tax-free, and it means you can withdraw money whenever you need it – giving you full flexibility and control over how it’s used.

While it’s a great advantage, it does mean you’ll have to manage your money carefully to make sure it lasts.

How does it compare to an annuity?

Another popular choice for retirees is an annuity. You exchange your pension pot for a regular, guaranteed income for the rest of your life, no matter how long you live. There’s no investment risk, and you don’t have to worry about managing your money after purchase.

However, you will lose the flexibility to adapt your income later, and rates offered by annuities can sometimes be lower than you might expect. Think of it as buying a guaranteed income for life with your pension pot.

While a pension drawdown offers you great flexibility, any money that remains invested runs the risk of its value going down. But if you’re comfortable managing your investments,  drawdown can offer you greater freedom.

Things to think about

Deciding which option works best for your needs may seem complex, but here are a few things to consider to help you make the most informed choice:

1

Investment risk

With pension drawdown, your money stays invested, which means it can go up or down in value. Good years can grow your pot, bad years can reduce it.
2

Longevity

No one knows how long they’ll live. You need to make sure your money doesn’t run out if you live longer than expected.
3

Budgeting

You’ll have to plan your withdrawals carefully. Taking too much, too soon, could leave you short later in life.
4

Tax implications

Withdrawals are like taxed income – taking a lot in one go means you might end up paying more tax.
5

Professional advice

Managing drawdowns can be tricky. Financial advisers can help you find the best approach for your goals.

Is pension drawdown right for you?

Pension drawdown could be a great fit if you want flexibility over how and when you access your money. If you’re comfortable with some degree of investment risk, it might be worth the freedom. 

It may also be the best choice for you if you’re confident in managing your own finances or are willing to speak to professionals. 

If, on the other hand, you prefer the peace of mind knowing exactly how much you’ll get every month, an annuity might suit you better.

What happens to my pension if I die?

If you pass away before age 75, your pension pot can be paid to your chosen beneficiary tax-free, up to a limit of £1,073,100 (after deducting any tax-free cash you’ve already taken). Any lump sum above this threshold is usually taxed in line with the beneficiary’s income tax rate.
If you’re over 75 when you die, all lump sum payments will be taxed according to your beneficiary’s tax bracket.

Currently, death benefits and any unused pension funds are not included in your estate for inheritance tax purposes. However, changes announced in the Autumn 2024 Budget mean this may change—these benefits could become subject to inheritance tax starting in April 2027.
Your beneficiaries can include loved ones, family members, or even a charity. To ensure your wishes are followed, you can nominate your beneficiaries in the Cushon app.

Your next steps

Choosing how to take your pension isn’t a decision to take lightly. To help you weigh your options and make an informed choice, we recommend reading the Retirement Guide available through your Creative Pension Trust Member Portal. You can also explore additional impartial guidance through MoneyHelper.

Your retirement should be a time to enjoy, and with the right plan in place, you can make the most of your hard-earned savings.

 

*Capital at risk. The value of investments can fall as well as rise, and you may get back less than you invest.

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