In flexi access drawdown you move (designate) uncrystallised money purchase funds into a drawdown fund, usually taking a tax free lump sum of up to one third of the amount designated at the same time. Whatever you later withdraw from the fund is pension income, taxed at your marginal rate through PAYE. The tax free lump sum on its own does not trigger the money purchase annual allowance, but the first income payment from the drawdown fund does.

What is flexi access drawdown?

Drawdown pension is authorised by pension rule 4 in section 165 of the Finance Act 2004, and flexi access drawdown is defined in paragraph 8A of Schedule 28. HMRC’s Pensions Tax Manual at PTM062701 explains that drawdown can only be paid from money purchase and cash balance arrangements, never from a defined benefits arrangement, and that schemes do not have to offer it.

You start drawdown by telling the scheme administrator that you are designating a specific amount of your uncrystallised funds to provide drawdown pension. Those funds become your flexi access drawdown fund. For a designation to take effect the scheme must be capable of paying income withdrawal to you, although no payment has to be made. With flexi access drawdown there is no minimum or maximum withdrawal: you can take nothing, a regular income, irregular sums or the whole fund at once, subject to the scheme’s own rules.

Capped drawdown, which limits annual withdrawals, is only available where funds were first designated before 6 April 2015. Any designation made since then by someone without an existing drawdown fund creates a flexi access drawdown fund (PTM062730).

How does the tax free lump sum work in drawdown?

When funds are designated, you may take a pension commencement lump sum (PCLS). PTM062730 explains that it can be one third of the value of the funds put into drawdown, which is the same as 25% of the total crystallised. HMRC’s own example: from a pot of £40,000, designate £30,000 to drawdown and take £10,000 tax free.

The PCLS is also limited by your available lump sum allowance. HMRC guidance says this is usually £268,275 across all your pensions, unless you hold a protected allowance. If you have already taken tax free cash since 6 April 2024, or crystallised benefits before then, your available allowance will be lower.

Timing is strict. PTM063220 explains that a PCLS can be paid within the six months before entitlement to the drawdown pension arises or up to 12 months after it. A lump sum paid outside that window is not a PCLS.

You do not have to designate the whole pot at once. PTM062701 confirms that part or all of the uncrystallised funds can be designated, so many people designate in stages and take a slice of tax free cash with each one. There can only be one drawdown fund per arrangement, so later designations are added to the same fund.

How is drawdown income taxed?

Under section 579A of the Income Tax (Earnings and Pensions) Act 2003, drawdown pension, whether income withdrawal or a short term annuity bought from the fund, is pension income. PTM062730 states that you pay tax at your marginal rate on whatever you take in the tax year, and the scheme administrator must deduct tax under PAYE. Withdrawals are added to your other income, including the State Pension, so the rate depends on your total income for the year.

For 2026 to 2027 in England, Wales and Northern Ireland the personal allowance is £12,570, basic rate (20%) applies to taxable income up to £50,270, higher rate (40%) up to £125,140 and additional rate (45%) above that. The personal allowance is reduced by £1 for every £2 of adjusted net income above £100,000, so a large one off withdrawal can cost more than the headline rate suggests. Scottish taxpayers use the Scottish rates.

Why is the first withdrawal often over taxed?

HMRC’s PAYE Manual at PAYE94055 says that unless you give the scheme a P45 dated in the current tax year, the scheme uses the emergency tax code on a month 1 basis against the first payment. HMRC then sends the scheme a proper code for later payments. A month 1 code assumes the payment is repeated every month, so a large first withdrawal can have far more tax taken than you will owe.

You can claim the excess back in the same tax year. GOV.UK lists form P55 where you have not emptied the fund and are not taking regular payments, P53Z where you have emptied it and have other income, and P50Z where you have emptied it and have no other income apart from the State Pension. If you do nothing, HMRC says it will review the position after the tax year ends. One practical way to limit the problem is to take a small first withdrawal so that HMRC issues a cumulative code before larger sums follow. Our pages on PAYE tax codes and P60s and P45s explain the paperwork.

What triggers the money purchase annual allowance?

PTM056520 sets out the trigger events under section 227G of the Finance Act 2004. For flexi access drawdown, the trigger occurs immediately before the first payment of income withdrawal, or of a short term annuity, from a fund designated on or after 6 April 2015. PTM056530 confirms that a PCLS on its own is not a trigger. So designating funds and taking only the tax free cash leaves your full annual allowance intact.

Once triggered, the money purchase annual allowance (MPAA) applies for that tax year and every later year. PTM056510 confirms it is £10,000 from 2023 to 2024 onwards. If money purchase contributions exceed it, other pension saving is tested against an alternative annual allowance, which GOV.UK puts at £50,000. Unused MPAA cannot be carried forward.

Your scheme must send a flexible access statement within 31 days of the first flexible access. PTM166400 explains that you must then tell any other scheme where you are still building up benefits within 13 weeks. Payments from a beneficiary’s flexi access drawdown fund, inherited from someone else, do not trigger the MPAA.

A worked example

Illustration only. Priya, 62, lives in England, earns £30,000 and has a £200,000 uncrystallised pot. Her employer pays £6,000 a year into her pension.

  1. In May she designates £120,000 and takes a PCLS of £40,000 (one third of £120,000). This is tax free and does not trigger the MPAA, so her employer contributions remain covered by the normal annual allowance.
  2. The remaining £40,000 stays uncrystallised for later.
  3. In the following tax year she retires and starts taking £18,000 a year from the drawdown fund. That first payment triggers the MPAA, but she has stopped contributing, so it has no practical effect.

Had Priya taken £18,000 of income while still working, it would have been added to her £30,000 salary, taxed at 20%, and the MPAA would have capped money purchase contributions at £10,000 a year.

What mistakes should you avoid?

  • Taking a “small test” income payment, which permanently triggers the MPAA when only the tax free cash was needed.
  • Assuming all the money in drawdown is still tax free. Only the PCLS is; every withdrawal from the fund is taxable.
  • Emptying the fund in one tax year and paying higher or additional rate tax, when spreading withdrawals would have kept income in the basic rate band.
  • Forgetting that the State Pension is taxable and counts towards your income; see how the State Pension is taxed.
  • Not comparing drawdown with an UFPLS, which spreads the tax free element across each withdrawal instead of paying it up front.

What happens to the fund on death depends on your age when you die; see tax on inherited pensions.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.