SIPP Drawdown

If you’ve built up a decent self-invested personal pension (SIPP) retirement pot, deciding how and when to take income from it is one of the most important retirement planning decisions you’ll make. Here, we explain what SIPP drawdown is, how it works, the rules and tax considerations, and where to get independent advice.

What is a SIPP drawdown?

SIPP drawdown (also known as flexi-access drawdown) is a way of taking money from your SIPP while keeping the rest of your pension invested.

Instead of converting your pension into a guaranteed income (like an annuity), drawdown allows you to:

• Take up to 25% of your pension tax-free (if available)

• Leave the remaining funds invested

• Withdraw income as and when you choose

This gives you flexibility and control, but it also means your retirement income depends on investment performance and how much you withdraw.

How does SIPP income drawdown work?

Once your SIPP is eligible for drawdown (normally from age 55, rising to 57 from 2028), you can move some or all of your pension into a drawdown account. From there, you can:

• Lump sum: Take a 25% tax-free lump sum, leaving the remaining 75% invested.

• Take regular tax-free income: If you leave your pension untouched (uncrystallised), the first 25% of each payment is tax-free, with the other 75% classed as income. This is known as Uncrystallised Funds Pension Lump Sum (UFPLS).

• Manage your withdrawals: Vary, pause, or increase income withdrawals over time to suit your circumstances.

You don’t have to move your entire SIPP into drawdown at once. You can use phased drawdown, gradually moving funds over several years to manage your tax responsibilities more efficiently.

SIPP pension drawdown rules

There are several key rules and tax considerations to understand before using SIPP drawdown:

• Access age: You can generally access SIPP drawdown from 55 (rising to 57 in 2028), unless you qualify for early access due to ill health.

• Tax rules: Up to 25% can usually be taken tax-free (maximum £268,275 based on the current Lump Sum Allowance). All further withdrawals are taxed as income at your marginal rate. Large withdrawals in a tax year can push you into a higher tax band.

• Money Purchase Annual Allowance (MPAA): Once you take taxable income via drawdown, your future pension contribution allowance usually drops to £10,000 per year (based on current rules).

• Charges: SIPP drawdown often involves platform or provider fees, investment charges, and additional drawdown or income payment fees. These charges vary widely between providers and can affect your long-term outcomes.

What to consider first

Before putting a SIPP into drawdown, it’s worth doing a pension review to look at:

• Your essential spending needs versus discretionary spending

• Whether your pension pot is large enough for long-term drawdown

• Your attitude to investment risk and market volatility

• How long your retirement income needs to last you

• Other income sources (State Pension, DB pensions, rental income, etc.)

• Tax efficiency and inheritance planning

Drawdown offers flexibility, but it also places more responsibility on you to manage income and investment risk, which is why expert advice can be crucial.

How to put a SIPP into drawdown

The process of moving your SIPP into drawdown typically involves:

1. Reviewing your SIPP value, investments, and retirement goals

2. Deciding whether to use full or phased drawdown

3. Selecting how much tax-free cash (if any) to take

4. Ensuring your investments are appropriate for income drawdown

5. Completing drawdown paperwork or a transfer to another provider

6. Setting up regular or ad-hoc income withdrawals

Because this decision can affect your income for decades, many people choose to get some professional advice to create a plan before proceeding with SIPP drawdown.

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Comparing how much income you’ll get

The income you can safely take from a SIPP in drawdown depends on your pension value, withdrawal rate, and investment performance.

Here’s a simplified example calculation based on a 4% to 6% drawdown withdrawal rate to give you an idea:

Keep in mind that if you stay invested, your remaining SIPP balance could grow over the years even as you draw down, so it’s worth factoring in investment projections into your calculations.

Best SIPP provider options for drawdown

Not all SIPP providers are equally suited to drawdown. Some focus on low costs, while others offer broader support or investment flexibility.

Here are some examples of well-known UK SIPP pension providers commonly used for drawdown:

• Fidelity

• AJ Bell

• Aegon

• Standard Life

• iWeb (now part of Scottish Widows)

• Bestinvest

• Aviva

• Hargreaves Lansdown (HL)

• interactive investor (ii)

However, the best SIPP drawdown provider depends on factors such as:

• Drawdown and income payment charges

• Investment and asset choice

• Ease of managing withdrawals

• Ongoing platform costs

• Whether advice or execution-only access is required

Comparing providers purely on headline fees can be misleading, so it’s usually best to assess them in the context of your entire retirement plan.

Get 100% independent pension advice today

SIPP drawdown offers flexibility, but it also exposes you to investment, longevity, and tax risks. Wrong decisions leading up to, and during drawdown, can significantly affect your retirement income.

It’s usually worthwhile to get some expert advice, and here’s why people trust us to help them with guidance on SIPP drawdowns:

• Access to independent, FCA-regulated pension advisers

• Free initial pension chat with no obligation to proceed further

• Tailored drawdown strategies based on your retirement income needs

• Help comparing SIPP providers, charges, and drawdown options

If you’d like a free, no-obligation chat with a qualified pension adviser about SIPP drawdown, you can get started here.