Pension drawdown: income, tax and the risk of running out.
Understand fixed and rising withdrawals, compare a worked scenario and explore the assumptions in the calculator.
What is pension drawdown?
Drawdown lets you take money from a defined contribution pension while the remaining balance stays invested. Withdrawals and charges reduce the balance; investment returns can increase or reduce it. The income is not guaranteed to last for life.
A lifetime annuity exchanges money for an insurer’s promised income under the contract. Its terms determine whether payments rise or continue to another person after death. Drawdown and an annuity can be used for different parts of a pension. Neither the size of a pot nor a calculator result establishes which arrangement suits someone.
Source: MoneyHelper’s drawdown explanation.
Worked example: fixed cash versus rising withdrawals
Take a £100,000 invested balance, no initial cash and £12,000 withdrawn during the first year. For this arithmetic example, growth and fees are both zero.
| At the end of | Fixed £12,000 each year | Withdrawal increasing 10% a year |
|---|---|---|
| Year 1 | £88,000 left | £88,000 left |
| Year 2 | £76,000 left | £74,800 left |
The rising scenario pays £13,200 in year two. Its cumulative withdrawals are £25,200, compared with £24,000 in the fixed scenario. The 10% increase is chosen to make the difference easy to see; it is not an inflation forecast. Tax is excluded.
In the calculator, choose the starting withdrawal, annual increase, investment growth and fee assumptions separately. If withdrawals rise with inflation, they illustrate maintaining purchasing power. A fixed cash amount buys less when prices rise. Both balances are displayed in future pounds.
Why a “4% rule” is not a guarantee
Four per cent of £300,000 is £12,000. That calculation says nothing by itself about whether the income lasts. It does not specify the investments, charges, withdrawal increases or length of retirement.
Our model applies the same return each month. It does not run historical sequences or estimate failure probabilities. A result that reaches age 100 is therefore labelled “not depleted in this model”, rather than “safe”. Age 100 is a comparison endpoint, not a life-expectancy prediction.
Sequence-of-returns risk
Losses early in drawdown can be particularly damaging: withdrawals remove money that would otherwise remain invested during a later recovery. Two return sequences with a similar average can produce different outcomes when withdrawals are involved. Changing a constant growth assumption does not reproduce this risk.
Source: MoneyHelper on flexible retirement income and its risks.
Tax-free cash and taxable withdrawals
Initial cash is usually limited to 25% of the amount being accessed and the available allowances. The standard lump sum allowance is £268,275 across your pensions; previous use, protections and scheme rules matter. This calculator assumes unused standard allowances, deducts cash once and models the remaining invested balance.
Taxable withdrawals are added to other taxable income. Their tax treatment depends on the tax year, residence and circumstances, including the available Personal Allowance. “Taxable” does not mean every withdrawal has tax to pay. The calculator shows gross withdrawals and does not deduct tax or automatically add State Pension.
Sources: GOV.UK lump sum allowance and tax when taking pension money. Continue to the pension tax guide for the distinction between contribution relief and withdrawal tax.
Access and future contributions
The normal minimum pension age is generally 55, rising to 57 from 6 April 2028. Protected pension ages and ill-health exceptions can apply. An age input is not an eligibility check.
Taking taxable flexi-access drawdown income normally triggers the Money Purchase Annual Allowance, restricting future tax-relieved defined contribution saving. Taking qualifying tax-free cash alone does not normally trigger it. Check the MPAA guide before treating the normal annual allowance as available after flexible access.
Sources: HMRC minimum pension age and GOV.UK annual allowance.
Compare the assumptions
Preparation before choosing an income arrangement
Record the pension’s current value, charges, guarantees, cash already taken and withdrawal options. Keep essential spending, other income and the timing of State Pension separate from the investment illustration. An unanswered question belongs on the list for the provider or adviser; it is not a reason to insert an optimistic assumption.
Pension Wise provides free guidance about defined contribution pension options. Personal recommendations require advice appropriate to your circumstances.
Related: annuity illustration, £300k pension income comparison, State Pension guide.
General information, not a personal recommendation. Sources checked 12 September 2026; tax references are for 2026/27 unless stated otherwise.