Pension Drawdown Calculator

The short answer

• You can usually take 25% tax-free, up to £268,275, and the rest is taxed as income when you withdraw it.
• A £250,000 pot at 66, with £62,500 taken tax-free and £15,000 a year withdrawn rising with inflation, lasts to about 79 at 4% growth.
• Taking less, or growth above inflation, makes it last much longer.
• Once you take taxable income, you can only pay £10,000 a year into pensions with tax relief.

What drawdown is

With flexi-access drawdown, your defined contribution pension stays invested in funds you choose, and you take income when you want: regular monthly payments, occasional lump sums, or nothing for a while. Whatever is left when you die can pass to your beneficiaries. The alternative is an annuity, which turns your pot into a guaranteed income for life. Many people combine the two.

Tax-free cash: upfront or phased

Taking the lump sum upfront and leaving it in cash means it is no longer invested for growth. If you do not need it, phasing keeps more money invested and spreads the tax-free element across many years.

How withdrawals are taxed

The taxable part of each withdrawal is added to your other income for the year, including the State Pension, and taxed at your normal rates. The full new State Pension is £12,547.60 a year in 2026/27, which uses almost all of the £12,570 Personal Allowance. So once you get the State Pension, nearly every pound of drawdown income is taxed at 20% or more. Before State Pension age, the first £12,570 a year of withdrawals can come out tax-free.

Worked examples

Phasing the tax-free cash instead, with the whole £250,000 kept invested, makes the same £15,000 a year last until 84, and the first year’s withdrawal is completely tax-free.

How much can I take each year?

A common rule of thumb is that withdrawing about 4% of a pot in the first year, then raising it with inflation, has historically lasted around 30 years. Research based on UK markets suggests a lower figure, nearer 3% to 3.5%, may be safer for someone retiring in their early sixties. The calculator shows your starting withdrawal rate and how different amounts change how long the pot lasts.

The risk of bad early years

The calculator assumes the same growth every year. Real markets go up and down, and the order matters: big losses in the first few years, while you are also withdrawing, do far more damage than the same losses later. This is called sequence of returns risk. Keeping one or two years of withdrawals in cash, and cutting back after a bad year, are common ways to manage it.

Bridging to the State Pension

Many people retire before State Pension age, which is 66 now, rising to 67 between 2026 and 2028. Drawing more from your pension until the State Pension starts, then less, can make good use of your Personal Allowance in the early years. Check your State Pension age with the State Pension age calculator, and your forecast on GOV.UK.

The Money Purchase Annual Allowance

Taking any taxable income from flexi-access drawdown, or a UFPLS payment, triggers the Money Purchase Annual Allowance. From then on, only £10,000 a year can be paid into defined contribution pensions with tax relief, instead of £60,000. Taking just the 25% tax-free lump sum does not trigger it. If you are still working and saving into a pension, think about this before taking income.

Emergency tax on first withdrawals

Your pension provider often taxes the first withdrawal on an emergency tax code, as if you would take the same amount every month. That can mean far too much tax. You can reclaim it from HMRC straight away using form P55 (for a one-off withdrawal) or P53Z (if you have emptied the pot), or wait for it to be corrected through your tax code. See the emergency tax calculator.

Drawdown or an annuity?

Compare a guaranteed income with the annuity calculator.

Drawdown and inheritance

Money left in a pension can pass to your beneficiaries. If you die before 75 it is usually free of Income Tax for them; after 75 they pay Income Tax at their own rate when they take it. From April 2027, unused pension funds will also count towards your estate for inheritance tax, so leaving a large pot untouched will be less attractive than it has been.

Reviewing your plan

Drawdown is not a decision you make once. Review your withdrawals, investments and charges at least once a year, and after any large market fall. Pension Wise offers free guidance, and a regulated financial adviser can recommend a plan for you. Watch out for scams: never transfer a pension after an unexpected call.

Charges in drawdown

Drawdown usually involves a platform fee, fund charges and sometimes an adviser’s fee, often adding up to 0.5% to 1.5% a year. Charges come out whether markets rise or fall, so they matter more the longer your money is invested. The calculator’s growth rate should be after charges: if you expect 5% from investments and pay 1% in fees, enter 4%.

Planning your spending

Spending in retirement is rarely flat. Many people spend more in their early, active years on travel and hobbies, less in their seventies, then possibly more again on care. Start by working out your essential spending: housing, bills, food and transport. Aim to cover that from guaranteed income such as the State Pension, a final salary pension or an annuity, and use drawdown for the rest. That way a bad year in the markets affects holidays, not heating.

Care costs later in life

Care costs can be large. A pension pot in drawdown counts as capital in the council’s care means test only once you take money out, but the income you could draw may be taken into account. Planning for possible care is one reason not to draw a pot down too quickly. See the care home means test calculator.

Couples

Each partner has their own Personal Allowance, so drawing income from both partners’ pensions can keep both of you in the basic-rate band and reduce the tax a couple pays. If one partner has a smaller pension, it can make sense to draw more from theirs first. Make sure both pensions have up-to-date nominations, so the money goes to the right person if one of you dies.

Choosing a drawdown provider

You do not have to stay with your current pension provider for drawdown. Many workplace schemes do not offer it at all, so you may need to transfer to a personal pension or SIPP. When you compare providers, look at the yearly platform fee, the charges for each withdrawal, the range and cost of funds, and how easy it is to change your income. Some providers offer ready-made investment pathways, chosen for common plans such as taking an income over the next five years or leaving the money untouched. Check that any firm is authorised by the Financial Conduct Authority.

A review in practice

Suppose you start drawdown at 66 with £187,500 invested and take £15,000 a year. After a year in which markets fall 15%, your pot would be worth far less than planned. Cutting your withdrawal for a year or two, or skipping the inflation increase, gives the pot time to recover and can add several years to how long it lasts. Planning these adjustments in advance, for example a rule to take 10% less after any year with a loss, makes them easier to stick to when the time comes.

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