This can be a good option for example, if you plan to carry on working either full or part time or are not ready or need to take all of your pension income. It may also allow you to take a lump sum prior to retirement to meet a certain objective for example redeeming your mortgage.
How does pension drawdown work?
If you contact your pension(s) provider, they will let you know if you can set up a drawdown arrangement with them and if not, you will need to transfer to another provider who can. It is recommended you shop around providers even if your own provider can set this up for you (or work with a Financial Adviser who will do this for you) as there are different options, costs and benefits to be gained.
Before making the decision to transfer it is vital to check you are not losing any enhanced benefits held under your existing plan.
How much drawdown should I take from my pension?
You can usually choose to take up to 25% of your pension pot as a tax-free lump sum when you move some or all your pension pot into drawdown, from the age of 55.
Please be aware the Government announced an increase in the age you can access your pension from 55 to 57 in 2028.
You can take more but the amounts you withdraw after you take your 25% tax-free lump sum will be classed as taxable earnings in the tax year you take them. Your taxable earnings will include all income sources including your state pension.
Ideally, the money in your pension fund needs to carry on growing at a rate that makes your ongoing withdrawals sustainable throughout your retirement. You will need your fund to be wisely invested to make sure you can maintain your retirement lifestyle.
You will need to carefully consider where to invest the remaining 75% (or less if you have not needed to take the full 25%), taking your likely income needs and attitude to risk into careful consideration.