More people are using pension drawdown to access their retirement savings.
Nearly 350,000 people entered pension drawdown in 2024-25, according to the latest data from the Financial Conduct Authority – an increase of 26% on the year before.
This continues the upward trend seen over the past five years, with drawdown sales rising by 78% since 2019-20 when 197,000 plans were taken out.
Here we explore the pros and cons of pension drawdown and how to choose the best provider for you.
Why is pension drawdown so popular?
When you come to access money in your defined contribution pension, you can take 25% as a tax-free lump sum (up to a maximum of £268,275).
It’s up to you how you take the rest of your pot: you can take some or all of it as cash; exchange it for an annuity or leave it invested and take money out when you need (drawdown).
Flexibility is the big selling point of drawdown. The ability to take income to suit your needs, combined with the possibility of your pot continuing to benefit from investment growth, has clearly been a hit with retirees.
The ability to pass on remaining money in your drawdown plan to loved ones after your death has also been seen as an advantage, although this may incur inheritance tax when rules change in April 2027.
- Find out more: pension drawdown explained
The drawbacks of pension drawdown
Opting for drawdown means you’ll need to accept a degree of risk, as keeping your money invested puts you at the mercy of the markets. If they’re volatile, your portfolio could easily lose a good chunk of its value.
The worst-case scenario is that you run out of money entirely, either by taking out too much cash or because your investments underperform, or a combination of both.
Should you take advice before using drawdown?
Most (55%) sales of pension drawdown are still arranged without advice, but if you lack the confidence to choose or manage your own investments, you should strongly consider enlisting the help of a financial adviser.
A comparison site is a good place to start your search. Unbiased is a free-to-use service that can connect you with local independent, FCA-regulated financial advisers tailored to your needs.
VouchedFor also has a directory of verified advisers, which it says are ‘all vetted, reviewed and monitored’, with feedback from real clients to help you compare and choose.
- Find out more: how to find a financial adviser
Comparing pension drawdown charges
Many people remain with their existing pension provider when going into drawdown. This is in spite of the fact that it pays to shop around, as fees differ significantly between companies.
Unfortunately, making a comparison isn’t straightforward, as charging structures vary between providers.
You’ll pay a fee to your drawdown provider every year, regardless of how your investments have performed or whether you’ve made any changes to them. That’s before you factor in fund fees on individual investments, plus charges for buying and selling.
The core drawdown charge is usually a fixed admin fee or a platform fee calculated as a percentage of the money you have invested.
This might be a single percentage fee charged on the entire value of your pot, or a range of percentage fees applied to different portions (for example, 0.4% on the first £100,000; 0.3% between £100,001 and £250,000 and so on).
Our latest analysis found that annual fees for a drawdown pot worth £350,000 (the average value among drawdown customers we surveyed) vary from around £1,000 (Interactive Investor) up to £3,200 (Pru/M&G). This means that over 10 years, you would be £25,000 better off by opting for the cheaper provider.
- Find out more: pension drawdown charges compared
The drawdown providers recommended by Which?
To become a Which? Recommended Provider of pension drawdown, companies need a high customer score (70% or more) in our survey of nearly 1,800 customers, and they must charge competitive fees across six pot sizes (ranging from £50,000 to £750,000).
Six providers have made the grade this year: Transact, Royal London, AJ Bell, Fidelity, Interactive Investor and Quilter.
- Find out more: our pension drawdown provider reviews in full