Make the most of your pension drawdown

Use Nutmeg’s flexible-access pension drawdown to take control of your retirement. Choose how much and when you want to withdraw from your pension, while keeping the rest invested.

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What is pension drawdown?

Pension drawdown is a flexible way to access your pension in retirement. Once you turn 55 you can use pension drawdown to take income from your pension, while keeping the rest invested. You’re able to take 25% from your pension tax-free, with subsequent withdrawals taxed at your marginal rate of income tax. Or if you would prefer you can take a series of smaller payments as and when you want of which each payment will be 25% tax-free.

Once you start pension drawdown, which is also known as flexible-access drawdown or income drawdown, you can withdraw taxable income from your pension pot as and when you need it.

Drawdown offers the potential for growth through investing, and it might be right for you if you’d like to be in control of how and when you access your pension funds. However, it’s important to know that you aren’t guaranteed an income: because your pension remains invested, the size of your pot – and therefore the amount of money you can withdraw – will depend on how your investments perform.

To learn more about how pension drawdown works and the pension drawdown rules, our client services team is happy to help.

How does pension drawdown work at Nutmeg?

1

Get started

Once you’re ready to go into drawdown (you need to be at least 55 years old), send us a message via Nutmail to get the process started. If you don’t already have a pension with Nutmeg but would like to use us for drawdown, you’ll first need to transfer a pension.

2

Complete the paperwork

We send you some paperwork to complete and return to us, along with proof of the bank account that you like your funds paid into. Choose how much of your tax-free cash to take, or how much of your pension to take as regular income or a one-off payment.

3

Leave it to us

Once we’ve received your paperwork, we’ll process your drawdown request – it usually takes three to four weeks for the initial funds to reach your bank account. You only need to contact us again if you want to initiate a one-off payment or change your regular payments.

Benefits of pension drawdown with Nutmeg

Experienced support

Understanding your pension options can help ensure you’re able to make the most of your later years. Our client services team and financial advisers are experts in the complex world of pensions and are on hand to help. Speak to our team to find out more about pension drawdown rules and how it works.

Flexible and transparent

At Nutmeg, we’ll help you make the most of the flexible options available when you decide to go into drawdown, and it’s easy to make changes to your drawdown as and when you need to. Our pension drawdown service is free and there are no surprise fees or charges.

Expertly designed

Our in-house investment team has designed and built a range of investment portfolios (including a socially responsible option) to suit your retirement needs. You can access your account 24/7 via the app and dashboard to see where your pension is invested and how it’s performing.

Most people ask us

Pension drawdown allows you to take an income from your pension while keeping the rest of your pension fund invested.

From the age of 55 – rising to 57 from 2028 – you can opt-in to pension drawdown and start withdrawing from your pension. You can move your pension into flexible drawdown all at once, or move smaller amounts bit by bit. Up to 25% of your total pension pot can be taken as tax-free cash. You can then decide how much taxable income you want to take from your pension, and when you want to receive it. It’s entirely up to you.

How you choose to use drawdown will depend on your personal circumstances, other sources of income, and how much income you’ll need in the future. While many people might take a regular income from their pension via drawdown, it may be that you don’t need an income straight away and you just want the initial tax-free cash, leaving the rest invested for you to access as and when you need it.

It’s important to remember that because some of your pension remains invested, pension drawdown doesn’t offer a guaranteed income. Furthermore, any income withdrawals over the initial tax-free 25% are taxable and will be added to any other income you receive. 

You can drawdown as much or as little as you want from your pension. You can withdraw all of your pension fund in one go, take a series of smaller lump-sum payments as and when you want, or receive regular monthly or annual payments.

Once you have opted-in to flexible-access drawdown, you have the control to decide when and how much income you want to withdraw. You can also start, stop, or change the amount as and when you want. 

However, depending on your personal circumstances, there may be different tax implications associated with the method and amount you choose to withdraw. 

When deciding on how much to drawdown, it’s important to calculate how long your pension needs to last and how much income you might need in the future.

Remember, as some of your pension remains invested, your income is not guaranteed: it is dependent on how your investments perform. 

You can take money from a flexible-access pension by using drawdown as often as you want, once you turn 55. There’s no limit on the number of withdrawals you make, and it’s totally up to you as to how you manage your pension income. You can choose to receive an income on a regular basis, make withdrawals as and when you want, or make no withdrawals at all. 

Of course, it’s important to remember that your pension needs to last for the entirety of your retirement, so if you withdraw too much too soon you might not have enough left in your later years. 

We always aim to process your drawdown request as quickly as possible, although the length of time it takes will depend on whether you choose to take income or only tax-free cash. Once you’ve completed and sent us the necessary paperwork it usually takes three to four weeks for the funds to reach your bank account. Learn more about Nutmeg’s pension drawdown process.

When you start to withdraw money from your pension, the first 25% of your pension pot that you withdraw is tax free. You can choose to take the 25% as one single lump sum, or as a series of smaller amounts over a period of time – where 25% of each of these amounts will be tax free.  

This tax-free amount doesn’t use up any of your personal allowance.  

Any further income that you withdraw from your pension above this 25% threshold is taxable. The amount of tax you will need to pay will depend on your total income for the year and your tax rate.  

However, if the value of all of your pension pot is above your lifetime allowance currently £1,073,100 (be aware that your lifetime allowance changes with the tax year. You can find the latest lifetime allowance for the current tax year here) when you access your pension pot for the first time, further tax charges might apply. 

It’s also worth bearing in mind that when you start to access your pension, the amount you can continue to pay into it – and get tax relief on – reduces to £4,000 a year. Before starting drawdown, you can get tax relief on contributions of up to £40,000 per year or 100% of your salary if it’s lower: this reduces to £4,000 once you start drawdown.  But remember, if you’re a high earner with an adjusted income of more than £240,000 a year, the tax relief you can get on contributions is limited to a reduced annual allowance, known as the tapered annual allowance. Learn more about tax relief on pension contributions.

Always remember that tax rules and limits change and the particular benefits that you are able to receive will depend on your personal circumstances.

Nutmeg’s pension drawdown service is free, so it won’t cost you anything to activate your pension drawdown and to make withdrawals. However, you’ll need to pay the standard fees and service charges associated with keeping some of your pension invested: an annual management fee, the fund costs and the effect of market spread. We do our best to keep these fees and charges as low as possible and we’ll always let you know exactly how much you’re paying.

There are a number of risks associated with pension drawdown, and it might not be right for everyone. 

  • Because some of your pension remains invested, the value of your pension could go down as well as up, potentially leaving you with less than you originally invested. As such, drawdown is not a source of guaranteed income.  
  • If you choose to withdraw too much, too early, you may find that you do not have enough funds to support your needs later in life.  
  • Withdrawing large amounts could result in you being pushed into a higher tax band for the taxable portion of your withdrawal.  
  • When you go into pension drawdown, the amount of money you can continue to contribute to your pension, and get tax relief on, reduces significantly.  

If you’re unsure if pension drawdown is right for you, our financial advisers are happy to help you understand your options. 

 

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Our team of specialists can help answer any questions you may have.

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