Martin Lewis' Advice on Pension Drawdown (December 2025)

12th Dec 2025

Retirement

By Ashley Shepherd

By Clare Townhill • Updated 15 December 2025
Disclaimer: Prices and ratings correct at time of writing.

As you move toward retirement, deciding how to turn your pension into income is one of the most important financial choices you’ll make. Martin Lewis (the MoneySaving Expert) has long highlighted that pension drawdown can be a flexible way to take retirement income, but that it also comes with risks.

In this article, we break down Martin’s tips, explain his advice and key concepts in plain English, and outline alternatives to drawdowns, like annuities, so you can make informed decisions about your future income.

Pension Drawdown – Martin Lewis' Key Takeaways

✓ Drawdown = flexibility but requires careful planning.

✓ 25% tax-free lump sum still applies—plan withdrawals for tax efficiency.

✓ Mixing annuity and drawdown offers security and freedom.

✓ Review investments, charges, and rules regularly.

✓ Use free guidance and consider paid advice for complex cases.

You can try our pension drawdown calculator here:

Martin Lewis's Key Pension Drawdown Advice

You're in charge, but be careful

Pension drawdown lets you choose how much money to take and when. If you take too much or markets fall, you could run out of money.

A quarter is usually tax-free

Normally, 25% of your pension savings can be taken without paying tax. You can take this all at once or in smaller chunks.

Spread withdrawals to save tax

Anything beyond that 25% is taxed as income. Spreading withdrawals across tax years can reduce your tax bill.

Watch your future contributions

Once you take taxable income, your annual pension contribution allowance drops to £10,000 (Money Purchase Annual Allowance).

Keep an eye on investments

Your pot stays invested: review funds and fees regularly.

Get guidance or advice first

Use Pension Wise for free, impartial guidance, and for tailored recommendations, consider regulated advice.

A more tax-efficient way to take your pension

Martin Lewis often highlights that taking the full 25% tax-free lump sum upfront and moving the remaining 75% into drawdown can be more tax-efficient, as income can then be taken in lower-tax years.

Be aware of limits on future pension contributions

Martin Lewis also highlights that once you take taxable income, your annual pension contribution allowance usually drops to the Money Purchase Annual Allowance of £10,000.

Consider mixing drawdown with annuities

Drawdown offers flexibility; annuities give guaranteed income.

Know the age rules

You can access pensions from 55; this will rise to 57 in 2028.

Pensions and Tax: Martin Lewis' Swiss Roll Analogy

Martin Lewis compares your pension to a Swiss roll cake to explain tax: The jam is your tax-free money (25%), and the sponge is the taxable money (75%). When you take a slice (i.e. drawdown) you always get jam and sponge together; you can't just scrape out the jam. This means every withdrawal after your initial tax-free lump sum is a mix of tax-free and taxable money. Taking smaller slices over time across different tax years can help you stay in a lower tax bracket.

Comparing Pension Annuity vs. Pension Drawdown

Feature	Annuity	Drawdown
What it is	You swap some or all of your pension pot for a guaranteed income for life.	You keep your pension invested and take money out when you need it.
Income security	Fixed income that can't run out (unless you choose a short-term annuity).	Flexible, but you could run out of money if withdrawals or investments go wrong.
Flexibility	Very little: you're locked into the deal once set up.	High: You decide how much and when to withdraw.
Tax treatment	25% of the pot can be tax-free upfront; the rest is taxed as income.	Same—25% tax-free allowance, rest taxed when you withdraw.
Investment risk	None—you hand the risk to the insurer.	You carry the risk—your pot stays in the market, which goes up and down.
Changing providers	Hard or impossible once purchased.	Easier: you can move to another drawdown provider.
Best for	People who value certainty and don't want to manage investments.	People comfortable with managing risk and wanting flexibility.

Note: It doesn't have to be an either/or decision; you can mix annuity and drawdown. Many use an annuity for essential income and keep a portion in a drawdown for flexibility.

Example: John uses part of his pot for an annuity to cover bills and keeps the rest in a drawdown for holidays or emergencies.

Guidance & Advice: You can get free help from Pension Wise (via MoneyHelper). If you have a larger pot or complex needs, regulated advice is worth considering. Pension Wise offers free, impartial guidance to help you understand your options, but it won't recommend specific products—for personalised recommendations, you'll need paid regulated advice from a qualified adviser.

Key Risks with Pension Drawdown

Market falls can reduce your pot value.

Outliving your money if withdrawals are too high or you live longer than expected.

Large withdrawals may trigger higher tax bills.

Charges can eat into returns—compare fees regularly.

Pension rules can and do change—review periodically.

Alternatives to Pension Drawdown

Annuities

Guaranteed income for life, less flexible.

Full Cash Withdrawal

Take all your pension as cash; 25% tax-free, rest taxed—may cause big tax bills.

Phased Retirement

Take benefits gradually from different pots.

Leave It Invested

Delay access to funds to allow for potential growth (if you don't need funds now).

A Note on Annuities (December 2025 Update)

Annuity rates are at some of their highest levels we have seen for some years, with a healthy 65-year-old able to achieve an annuity rate of around 7.6% guaranteed for life.

Customer Example: The Impact of Higher Annuity Rates

This table shows the difference a high annuity rate can make. The same customer with the same pension pot would receive £1,585 more with today's rates.

Scenario	Year	Pension Pot	Tax-Free Cash (25%)	Amount Used to Buy Annuity	Annual Income	Change vs 2022
65-year-old retiree	January 2022	£78,500	£19,625	£58,875	£2,914	—
Same customer	May 2025	£78,500	£19,625	£58,875	£4,499	+54% / +£1,585

Notes:

Figures are based on best available annuity rates at each date (source: MoneyHelper annuity tracking, May 2025).
Assumes a single-life, level annuity after taking 25% tax-free lump sum.
Actual income will vary depending on age, health, annuity type, and provider.

Important: Like interest rates, annuity rates fluctuate over any given period of time. So when applying for an annuity, it's worth getting a new quote at the last minute to ensure you're getting the best rate possible.

FAQs:

What’s Martin Lewis’ main message about taking a pension at 55?

Martin Lewis’ key message is that accessing your pension at 55 isn’t just about whether you can take the money, but about understanding the tax consequences. He regularly stresses that taking large sums in one go can trigger a much higher tax bill if the taxable portion pushes you into a higher income tax band.

Why can taking a large amount at 55 increase the tax you pay?

Each pension withdrawal is made up of 25% tax-free cash and 75% taxable income. The taxable part is added to your other income for that tax year. Taking a large lump sum can therefore push you into the 40% or even 45% tax band, significantly increasing the amount of tax you pay.

What does Martin Lewis say about drawdown and flexibility?

He explains that income drawdown gives you flexibility over how much you take and when. However, he also highlights that this flexibility comes with risk, because your pension remains invested and its value can rise or fall depending on market performance.

What risks does Martin Lewis warn about with drawdown?

Martin Lewis warns that with drawdown you are responsible for both managing withdrawals and investment risk. If you take too much too quickly, or markets perform poorly, there is a real risk that your pension pot could run out later in retirement.

Does Martin Lewis suggest annuities as an option?

Yes. For people who value certainty, he often suggests considering annuities alongside drawdown. An annuity provides a guaranteed income for life, removing the risk of running out of money, while drawdown can still be used to give flexibility for extra spending.

What guidance does Martin Lewis recommend before taking a pension at 55?

Martin Lewis strongly recommends using the free, impartial, government-backed guidance service Pension Wise (part of MoneyHelper) before accessing a pension. For more complex situations, he also suggests considering a regulated financial adviser who can provide personalised advice.

In Summary

Pension drawdown offers flexibility and control, but you need to plan carefully. Martin Lewis stresses the importance of spreading withdrawals, monitoring pension fund investments, and mixing the flexibility of drawdown with the certainties of annuities. Before making big decisions about your pensions, it is always worth either seeking general guidance or tailored regulated advice to help avoid costly mistakes. Ultimately, the best choice depends on your finances, goals, and comfort with risk.