Phased Drawdown vs Full Lump Sum: Choosing the Right Withdrawal Strategy

By Team SalaryCalculate · 7/8/2025

When it’s time to start accessing your SIPP (Self-Invested Personal Pension), one of the biggest decisions you’ll face is how to take your money. Should you withdraw a large amount upfront, or gradually phase it out over time? This guide compares phased drawdown and full lump sum withdrawals, helping you understand the pros, cons, and tax implications of each approach.

What Is Phased Drawdown?

Phased drawdown lets you take your pension in smaller, flexible amounts over time. Each withdrawal typically includes:

25% tax-free
75% taxed as income at your marginal rate

This is often done via Uncrystallised Funds Pension Lump Sums (UFPLS) or flexi-access drawdown.

Benefits:

Keeps more of your pension invested and growing
Helps manage your tax liability year by year
Gives flexibility to respond to income needs

More: SIPP Withdrawal Rules

What Is a Full Lump Sum Withdrawal?

With this strategy, you crystallise your entire pension at once:

Take 25% tax-free up front (Pension Commencement Lump Sum)
The remaining 75% is moved into drawdown or taken as taxable income

You can then:

Leave the 75% invested in a drawdown account
Withdraw it all at once (which could trigger higher tax)

Benefits:

Useful for big purchases (e.g. clearing a mortgage)
Simple if you want access to your full pot
May be helpful when life expectancy or legacy planning is a concern

More: How Much of My SIPP Is Tax-Free?

Key Differences at a Glance

Feature	Phased Drawdown	Full Lump Sum
Tax Efficiency	Often better (spread income)	Can trigger higher tax bands
Cashflow Flexibility	High – tailor withdrawals to needs	Lower once fully withdrawn
Investment Growth	More potential as funds stay invested	Depends on how remaining is used
Triggers MPAA (contributions)	Yes, if taxable income is taken	Yes
Complexity	Moderate – needs ongoing management	Simple upfront

Real-World Examples

Example 1: Phased Drawdown

Pension: £120,000
Year 1: Takes £10,000
- £2,500 tax-free, £7,500 taxable
Keeps rest invested
Income stays below higher-rate threshold

Example 2: Full Lump Sum

Pension: £120,000
Takes full 25% (£30,000) tax-free
Moves £90,000 to drawdown and withdraws £30,000 taxable
Income for year: £30,000 (salary) + £30,000 = £60,000
Part of pension is taxed at 40%

More: How Are SIPP Withdrawals Taxed?

When Might Phased Drawdown Be Better?

You want to control your tax bracket
You still earn income and want to supplement it
You prefer to keep funds invested for growth
You want to use personal allowance efficiently

When Might a Full Lump Sum Be Better?

You need a large amount upfront (e.g. home purchase)
You’re retiring early and want to front-load your income
You expect low future tax years
You want to gift or invest the funds outside a pension wrapper

Tax and Planning Considerations

Emergency tax may apply to large lump sums (can be reclaimed)
Taking income triggers the Money Purchase Annual Allowance (MPAA) – £10,000/year cap on future contributions
You could lose means-tested benefits with large withdrawals
Pension withdrawals count towards your adjusted net income, which affects Personal Allowance and Child Benefit

More: GOV.UK – Tax on private pensions

Summary

Choosing between phased drawdown and a full lump sum depends on your income needs, tax situation, and retirement goals. Phased drawdown can offer greater flexibility and tax efficiency, while a full lump sum offers simplicity and immediate access. Whichever you choose, careful planning — and the use of calculators or advice — can help you avoid costly tax mistakes.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Speak to a qualified adviser before making pension decisions.