Founder’s Letter: The Truth About Pension Drawdown

I posted a video this week about how to access a defined contribution pension in drawdown. It got over 100k views. And then the comments arrived.

Within these comments was almost every mistake people make with pension drawdown, and almost every piece of genuinely smart thinking too.

The first concern I want to address is one that affects a lot of people. When you take a large pension withdrawal, and HMRC does not have an up-to-date tax code for you, the provider is required to apply emergency tax rates.

On a £50,000 lump sum taken in a single month, the system can treat your entire annual income as if it were earned in that one month and tax accordingly, pushing you well into the higher rate band. The money is yours. You get it back eventually. But it can take weeks or months, and in the meantime, your cash is sitting with HMRC instead of in your account.

The fix is simpler than most people realise. Taking smaller, more regular withdrawals across the tax year rather than one large lump sum means HMRC has time to calibrate your tax code correctly, and you avoid the emergency rate problem altogether. It is also, as I covered in the video, a smarter approach for managing your taxable income year to year.

Then there was the concern about the government reducing the tax-free cash limit. The suggestion from several people was to take the full 25% now before the rules change. I replied that a lot of people have already cost themselves dearly on what turned out to be a rumour. I meant it.

I understand the anxiety. Governments have changed pension rules repeatedly, and some of those changes have been painful. People have every reason to be watchful. But restructuring your entire retirement income strategy in response to a story that never materialised is a very expensive way to manage that fear.

The tax-free cash limit has not been cut. If and when it is, I will tell you clearly and quickly. Until then, the decision about when to take your tax-free cash should be driven by your actual tax position, not by rumour.

A question that came up more than once: can you draw from a pension before the State Pension arrives and move the money into a stocks and shares ISA? It is a smart instinct, but the execution matters enormously.

Collapsing a pension pot all at once to move it into an ISA creates a tax event that often outweighs any benefit from the wrapper switch, particularly if it pushes you into a higher rate band in a single year. The pension wrapper is still sheltering growth from tax. That has value. The full drawdown guide I have built will illustrate this clearly.

On the question of whether taking tax-free cash while still employed causes a tax problem: possibly, depending on the size of the pot and what else you are earning.

Drawing taxable pension income on top of a full salary can easily push you into or further into the 40% band. Sequencing, when you draw, in what amounts, and in what order relative to other income, is the part most people have never been walked through. It is also the part that makes the biggest difference.

And for Scottish readers: Scotland has its own income tax bands, and the starter and basic rates differ from the rest of the UK. The principles in the video still apply, but the case for using tax-efficient wrappers is, if anything, slightly stronger if you are paying a higher marginal rate on income.

The thread I keep coming back to is not any single comment. It is the overall shape of them. Sharp, curious people who are genuinely engaged with their finances, asking questions the financial system has never properly answered for them. People who are being emergency-taxed every April just need someone to explain what is happening. Retirees who have largely got it right, almost entirely by instinct, with no professional guidance.

That is who I am writing for. And the full drawdown guide is can be found here.

Antonia

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This is general information, not personal financial advice. Tax treatment depends on individual circumstances and the figures used are for the 2026/27 tax year. Rules may change. Capital at risk.