Tailored drawdown – Full flexibility in the new world of retirement

What's changed?

  • Old World thinking was to take full tax-free cash before drawing a taxable income
  • Pension Freedoms gave us full flexibility to access pension funds at any time, without restriction

Our solution is Tailored drawdown

What's possible

  • Two income streams can be set up – one from the tax-free cash entitlement and one from the taxable element. The only restrictions on these income streams are legislative i.e.:
    - Tax-free income cannot be more than 25% of the un-crystallised pension fund
    - Taxable income cannot be more than the value of the post-crystallised pension fund
  • This is available on both of our SIPP products provided the client is invested in:
    i. Platform-eligible assets on Wrap (Insured Funds, Mutual Funds, DIMs via the Investment Hub or Product Cash)
    ii. Level One or Level Two investments on Active Money SIPP (Insured Funds, Mutual Funds or Product Cash) including ASC DIMs that receive daily valuations.

Tailored drawdown example

Compared to other retirement options:

Option Income Tax Paid TFC entitlement used Personal Allowance used
1. Full drawdown £1,875 £100,000 £12,500
2. 100% TFC £0 £20,000 £0.00
3. UFPLS £588 £5,148 £12,500
4. Tailored drawdown £0 £7,500 £12,500


A client wants £20k net income per annum and has a pension fund of £400,000 to support this. They have a personal allowance of £12,500 (2019/20) and no other taxable income. There are a number of options:

  1. In the past, retirees would often take their full entitlement to tax-free cash (TFC), put this in the bank and then take a taxable income with the balance – this will rarely be the most tax-efficient method of accessing pension funds, as this will result in the payment of unnecessary income tax and will bring the TFC into the estate for IHT purposes.
  2. They could opt to take a £20k income made up purely of TFC. They pay no income tax, but this then eats into the TFC that can be taken at a later date.
  3. They take a regular UFPLS (25% TFC and 75% taxable). If the client still wants £20k net they have to crystallise almost £21k, meaning that their fund will reduce by more (and therefore less for the client to draw on at a later date)
  4. With Tailored drawdown we can pay the client any combination of TFC and taxable income within legislative limits. This means we can pay £7,500 tax-free and £12,500 taxable and as this is within the personal annual allowance, no income tax is paid. The adviser demonstrates an almost £2k saving and the value of regular advice in retirement. Tailored drawdown can also replicate the TFC-only or UFPLS payments if this is what the client requires.
  5. Figures and example based on UK income tax rates. Figures may differ for Scottish and Welsh tax payers.

First moves to Drawdown – points to note

As the taxable income must be paid from the post-crystallisation monies, we need this part of the pension (the post pension pot) to be sufficiently funded before we can pay a regular taxable income.  As a result, if the client does not have a post-pension pot (i.e. this is their first crystallisation) then the first income instruction will have to be entirely made up of tax-free cash entitlement.

For example - a client wants £1,000 tax-free and £1,000 taxable each month

  • The first income paid will be £2,000 tax-free
  • This then funds the post pension pot with £6,000 (75% of the total £8,000 crystallisation)
  • Thereafter the income will be paid as £1,000 tax-free and £1,000 taxable each month

If the client is taking a tax-free lump sum at outset (which currently the majority of retirees do), then there will be no need to take the first instalment of Tailored drawdown as 100% tax-free, as the lump sum will fund the post pension pot.

How this helps you

The benefits of the new tailored drawdown feature are:

  • Supporting effective tax planning by facilitating regular pension income, shaped around a client’s requirements
  • Reduced cost and effort in your business as the individual instructions will not be required for each phase of drawdown
  • The income instructions can be changed at any point to suit each individual’s requirements as tax circumstances generally change on an annual basis
  • It’s a simple concept for you to explain to your clients
  • Help keep as much value within the pension as possible, only crystallising what is required - pensions are increasingly one of the most tax efficient savings products - so why take out more than is necessary?

Please remember that laws and tax rules may change in the future. The information here is based on our understanding in September 2017. Your client's personal circumstances also have an impact on tax treatment.

Next steps - placing business

  • In order to request a quote and submit business:
  Quote &/or Apply Quote Apply
Existing business New Business New Business
Wrap SIPP Phone our Decumulation team

(0345 279 1001 drawdown option)
Phone our Decumulation team

(0345 279 1001 drawdown option)
Paper Application

Wrap SIPP application form (PDF, 567KB)
Active Money SIPP Phone our Decumulation team

(0345 0845 000* drawdown option)
Sales Quotes Centre

(0345 279 8899*)
Paper Application

Active Money SIPP application form (PDF, 335KB)


*Calls may be monitored and/or recorded to protect both you and us and help with our training.
Call charges will vary.

Things to be aware of

  • If calling to request a quote or to move a client into drawdown, the only additional requirement is that we now need 2 income instructions (one tax-free and one taxable)
  • In order to ensure that income is funded:
    - For Wrap - regular sells to cash should be set up
    - For Active Money SIPP – we recommend that 6 months’ worth of income and charges are held in cash
  • We will always ensure that drawdown income is paid to the client, however any negative cash balances will result in our normal “Keeping Cash Healthy” processes.
  • Adviser Charging
    - Due to the fact that the Drawdown Initial Adviser Charge is calculated on the amount moving into drawdown, this will limit the value that can be paid on Tailored drawdown (as the individual phases will be small). As a result the best option for paying adviser charges will tend to be one of:
      - Requesting initial AC when the new monies are applied and before the dripfeed starts, or
      - An ad-hoc from the whole plan at any time
      - Ongoing Adviser Charges are set up in the normal way and are applied to the value of the total pension.