Pension Drawdown Calculator
Will your pension last? Three-scenario simulation with State Pension + 25% tax-free lump sum.
Safe Withdrawal Benchmark
Understanding Pension Drawdown for 2026/27
Pension drawdown is how most UK retirees turn their pension pot into retirement income since Pension Freedoms were introduced in 2015. Instead of buying a lifetime annuity, you keep the pot invested and withdraw variable amounts each year. This gives flexibility but also creates risk — a market crash early in retirement can devastate the pot’s longevity, a phenomenon called "sequence of returns risk".
The calculator above runs a year-by-year simulation of your drawdown: starting pot, annual withdrawals (inflation-adjusted), investment growth under three scenarios, the impact of State Pension kicking in at your specified age, and whether the pot runs out before you die. It shows you the longevity of the pot under pessimistic, central, and optimistic scenarios — critical information because retirement planning on central assumptions alone leaves you exposed to bad outcomes.
Best practice for drawdown in 2026: start with a 3-3.5% withdrawal rate for 35+ year retirements, hold 2-3 years of essential spending in cash to ride out downturns without being forced to sell stocks low, diversify the portfolio across UK/global equities and bonds, and build in flexibility — reducing discretionary spending in down years materially extends pot longevity. The pension drawdown calculator makes all this concrete with your exact numbers.
Key Figures for the 2026/27 Tax Year
- Minimum access age: 55 (rising to 57 in April 2028)
- 25% tax-free lump sum cap: £268,275
- Income tax on remaining 75%: Marginal rate — 20% / 40% / 45%
- Original 4% rule (for 30-year retirement): £25 of pot per £1 annual income
- Modern safe rate (35-40 year retirement): 3-3.5%
- Cash buffer recommendation: 2-3 years of essential spending
- Sequence of returns risk: Worst first 5 years can destroy longevity
- State Pension Age: 66 (rising to 67 between 2026-2028)
How to Use the Pension Drawdown Calculator
- Enter your current pot value at the start of drawdown.
- Enter your desired annual withdrawal (post-tax or gross).
- Enter your expected inflation rate (2-3% is typical).
- Enter your three growth scenarios (pessimistic 2%, central 5%, optimistic 7%).
- Enter your age at start and State Pension Age.
- Enter your expected State Pension annual amount.
- Toggle the 25% tax-free lump sum option.
- Review year-by-year pot values under all three scenarios, longevity age, and whether the pot lasts to age 95+.
Frequently Asked Questions
What is pension drawdown?
Pension drawdown is the process of taking a variable income directly from your invested pension pot after age 55. Unlike an annuity, your pot stays invested and you choose how much to withdraw each year. This gives flexibility and keeps growth potential, but exposes you to investment risk — which is why cautious withdrawal rates and cash buffers are essential.
How much can I safely withdraw from my pension pot each year?
The classic 4% rule was developed for 30-year US retirements. For a 35-40 year UK retirement, most researchers now recommend 3-3.5% as a safer starting rate. So a £500,000 pot gives £15,000-£17,500 per year sustainable withdrawal. You can withdraw more if flexible in bad years, or less to increase safety margins.
What is sequence of returns risk?
Sequence of returns risk is the danger that your retirement pot is devastated by a market crash in the first 5-10 years of drawdown, before any upside can compound. Two retirees with identical average returns over 30 years can have very different outcomes if one experienced bad years early. Mitigations: cash buffer, reducing withdrawals in down years, and lower initial withdrawal rates.
Should I buy an annuity or use drawdown?
It depends on risk tolerance and needs. Annuities give guaranteed income for life, protecting you from market crashes and longevity risk, but you lose control of the capital. Drawdown keeps the pot invested with growth potential but carries investment and sequence risk. Many retirees blend both: a small annuity covering essential spending plus drawdown for discretionary.
How is pension drawdown taxed?
The first 25% you withdraw is usually tax-free (the "tax-free lump sum"). The remaining 75% is taxed as income at your marginal rate when you withdraw it — 20%, 40%, or 45% depending on your total income for the year. Careful drawdown planning (e.g., taking only up to the Personal Allowance and basic rate band) can minimise tax.
What happens to my pension if I die?
If you die before 75, your beneficiaries usually inherit the remaining pot completely tax-free (within the Lump Sum and Death Benefit Allowance of £1,073,100). After 75, beneficiaries can withdraw the inherited pot at their own marginal income tax rate. Pensions are usually outside your estate for Inheritance Tax purposes, making them a powerful estate planning tool.
Related Calculators
- Retirement Pension Calculator — calculate pot size needed before drawdown
- Inflation Calculator — see the real purchasing power over long retirements
- ISA vs SIPP Calculator — ISAs provide tax-free drawdown flexibility
- Pension Annual Allowance Calculator — MPAA drops to £10k after flexible access
Official Sources
Last reviewed April 2026. Figures and rules apply to the 2026/27 UK tax year. This tool is for guidance only and does not constitute financial advice.
