What is the difference between capped drawdown and flexi-access drawdown?

Full answer

Capped drawdown and flexi-access drawdown are two ways of taking an income from a defined-contribution pension while leaving the rest invested. The difference matters most for how much you can withdraw and how much you can keep paying in afterwards. Capped drawdown was the older system. It limits your annual income to a maximum (broadly 150% of an equivalent annuity, reviewed periodically by reference to GAD rates). It closed to new entrants on 6 April 2015, so you can only still be in it if you set it up before then. Its big advantage is that, provided you stay within the income cap, your pension annual allowance stays at the full GBP 60,000 (2026/27) -- so you can keep contributing meaningfully. Flexi-access drawdown is the modern default introduced in April 2015. After taking your tax-free cash (normally up to 25% of the pot), the rest moves into a drawdown fund from which you can withdraw any amount, whenever you want. Withdrawals above the tax-free element are taxed as income at your marginal rate -- 20%, 40% or 45%. The key trade-off is the annual allowance. Once you take any taxable income from flexi-access drawdown, you trigger the Money Purchase Annual Allowance (MPAA), which cuts how much you can contribute to defined-contribution pensions with tax relief to GBP 10,000 a year (2026/27), down from GBP 60,000. This is permanent and can catch people who dip into a pension but plan to keep working and saving. Worked example: someone who takes a one-off GBP 5,000 taxable lump from flexi-access drawdown triggers the MPAA, so future DC contributions are capped at GBP 10,000 a year. Someone in capped drawdown who stays under the income cap keeps the full GBP 60,000 allowance. Who it affects: anyone aged 55+ (rising to 57 from 2028) accessing a DC pension flexibly, especially those still working. Use a pension calculator to model income, tax and the allowance impact before drawing.

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