Pension drawdown lets you take money from a defined contribution pension while keeping the rest invested. Rather than receiving a fixed income, you decide how much to withdraw and when, giving you flexibility to adjust as your circumstances change. This guide explains pension drawdown tax and the key 2026/27 figures.
How does drawdown work?
You can normally access a private pension from age 55. The normal minimum pension age is due to rise to 57 on 6 April 2028, subject to certain exceptions. Once eligible, you can usually move some or all of your pension into flexi-access drawdown and take income as needed.
How is pension drawdown tax calculated?
You can usually take up to 25% of your pension as tax-free cash, subject to the relevant allowances. The remainder of your withdrawals is generally taxable as income and added to your other taxable income for the year.
Illustration: a £100,000 pension pot
Green: up to 25% tax-free. Blue: 75% taxable as income when withdrawn.
Illustration only, assuming the 25% is within the individual’s Lump Sum Allowance. It is not a recommendation.
Pension drawdown tax: key figures for 2026/27
| Lump Sum Allowance (standard) | £268,275 |
| Personal Allowance | £12,570 |
| Income Tax rates (England, Wales and NI) | 20%, 40%, 45% |
| Money Purchase Annual Allowance (MPAA) | £10,000 |
| Standard annual allowance | £60,000 |
Some people have higher protected allowances, and the annual allowance can be reduced for some higher earners.
Different ways to access your pension
Drawdown is one option. You could instead use some or all of your pension to buy an annuity, which converts it into a guaranteed income, usually for life. You can also take uncrystallised funds pension lump sums (UFPLS). Each withdrawal is typically 25% tax-free (if within the Lump Sum Allowance) and 75% taxable. Taking your entire pension as one lump sum could push you into a higher Income Tax band.
Why timing matters for pension drawdown tax
A large withdrawal in a single tax year could increase your Income Tax bill by pushing more of your income into a higher band. Spreading withdrawals across tax years may reduce your pension drawdown tax bill, depending on your circumstances. Remember other income too, including salary, the State Pension, investment income and rental income.
Watch the contribution rules
If you keep contributing to a defined contribution pension after flexibly accessing it, the Money Purchase Annual Allowance applies and may limit what you can contribute efficiently. This matters particularly if you plan to take pension benefits while still working.
Related reading: combining pension drawdown with an annuity, our retirement planning guide and the government’s pages on tax on your private pension and Income Tax rates.
Discuss your situation with us
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Prefer to talk first? Call 0208 611 2521 (Wimbledon) or 01252 411 851 (Farnham), Monday to Friday, or email info@comptonfinancial.co.uk. In-person meetings in Wimbledon or Farnham are available by pre-arrangement.
This article is for general information and does not constitute tax, legal or financial advice. It should not be relied upon as such. A pension is a long-term investment not normally accessible until age 55 (57 from April 2028, unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up, which would affect the level of pension benefits available.
Our services relate to certain investments whose prices are dependent on fluctuations in the financial markets beyond our control. Investments and the income from them may go down as well as up and you may get back less than the amount invested. Past performance cannot be used as a reliable prediction of future performance.
Compton Financial Services Limited is an appointed representative of New Leaf Distribution Ltd which is authorised and regulated by the Financial Conduct Authority (FCA). FCA number is 460421.
