What is pension drawdown?
Pension drawdown, also called flexi-access drawdown, allows you to keep your pension pot invested and withdraw money flexibly as you need it. Unlike an annuity, there is no guaranteed income, and the pot can run out if withdrawals are too high or returns are poor.
What is the 4% rule?
The 4% rule is a guideline suggesting that withdrawing 4% of your initial pension pot per year has historically lasted 30 years in many market scenarios. It is a starting point, not a guarantee, and UK retirees may prefer a more conservative rate.
What is sequence of returns risk?
Sequence of returns risk is the danger that poor investment returns early in retirement permanently damage your pot. If markets fall in the first years of drawdown and you keep withdrawing, the pot may have fewer units left to benefit from any recovery.
Should I take the 25% tax-free lump sum?
Taking tax-free cash is not always the right decision. If you do not need the cash immediately, leaving it invested in the pension and drawing it gradually may be more tax-efficient. Take advice before making this decision as it cannot be reversed.
Related calculators:
- Pension Annual Allowance Calculator
- Pension Tax Relief Calculator
- State Pension Calculator