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How does drawdown work?

Drawdown is a way of withdrawing money from your pension pot, either as a lump sum or as a regular income, and is typically available once you are 55.

The first step in taking drawdown will be to move money out of your pension savings. This process is known as ‘crystallisation’. At this point, you can normally take 25% of the money tax-free. The rest will go into a drawdown account, and you can withdraw it whenever you like.

For example, you might decide to ‘crystallise’ pension savings of £100,000:

  • You will be able to have £25,000 of this money tax-free.
  • The remaining £75,000 will go into a drawdown account, and you can withdraw it as and when you like. Technically you could take the whole amount as a single lump sum, but you could also opt for a regular income of, say, £250 a month.
  • Another option would be to take a smaller lump sum – for example, to repay your mortgage or to upgrade your home – and start taking a regular income from the money still in your drawdown account.

You do not need to ‘crystallise’ your whole pension pot at the same time. You can do it in phases, as you decide you need the money.

Pension income that you take as drawdown is taxable ­– in other words, it will count towards the amount you may have to pay Income Tax on, along with any money you earn and other pension payments you receive, such as the State Pension. You should remember that a large drawdown withdrawal could move you into a higher tax bracket.

You can find more information about drawdown here.

Taking money out of your pension savings is a big decision and could affect your financial wellbeing for the rest of your life, so you may want to take advice first. With a Fidelity SIPP, advice is available through Fidelity’s Retirement Service. Call 0800 368 6882 for a free initial chat, to find out how the service works and what the charges will be.

Another place to go for help is Pension Wise, the government’s free, impartial guidance service, designed to help you understand the various ways you can turn your pension pot into an income. You can call 0300 330 000 and book a guidance appointment, either on the phone or face to face. Alternatively, go to to explore your options.