Glossary · UK
What is Phased (or Segmented) Pension Drawdown?
A strategy where segments of a pension are crystallised gradually over time, each triggering their own 25% tax-free cash, to optimise income levels and marginal tax rates.
Full Definition
Phased drawdown (sometimes called segmented drawdown) involves dividing a pension pot conceptually or literally into segments, and crystallising -- converting from uncrystallised to crystallised -- only a portion at a time. Each segment crystallises its own 25% pension commencement lump sum (PCLS) tax-free cash, with the remaining 75% entering flexible access drawdown (FAD). By crystallising only the segment needed to provide annual income, the taxable element drawn from FAD is kept low, potentially within the basic-rate band. This contrasts with taking all tax-free cash at once and drawing 100% taxable income thereafter. Phased drawdown also delays the onset of the Money Purchase Annual Allowance (MPAA): the MPAA triggers when you first access FAD, so by deferring full crystallisation you preserve the ability to make large pension contributions (up to the full GBP 60,000 annual allowance). Platforms differ in how they implement phased drawdown -- some use segment-by-segment crystallisation, others use partial UFPLS (Uncrystallised Fund Pension Lump Sum) which is 25% tax-free and 75% taxable from each withdrawal without a formal drawdown account.