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Join Which? MoneyRecord number of savers drawing down at rates above ‘safe’ limit – are you taking too much?
The 4% rule for pension drawdowns aims to stretch your retirement savings across 30 years
Pensioners are taking almost double the recommended amount from their pots, putting them at risk of running out of money in retirement.
According to the latest data from the Financial Conduct Authority (FCA), almost half of pension pots were withdrawn at a rate of 8% or more in 2024-25 – up two percentage points on the previous year and the highest proportion recorded.
That’s well above the long-standing ‘4% rule’ often used as a guide for sustainable withdrawals.
Here, Which? explains what it means, whether it still works, and what to consider before dipping into your pension
Why are people withdrawing more?
Analysis by consultancy firm Broadstone, based on eight years of FCA Retirement Income Market Data, shows higher withdrawal rates across pots of all sizes.
For smaller pots under £10,000, around 84% of savers withdrew at least 8% last year.
Larger pots followed the same trend: 34% of those worth £100,000-£249,000 and 14% of pots worth £250,000 or more were drawn down at that rate.
The rise follows the Chancellor’s announcement in the October 2024 Budget that pensions will be included in inheritance tax (IHT) calculations from April 2027. This is thought to have prompted some retirees to take out more now – either to spend or to gift to loved ones during their lifetime.
While the figures suggest this could be driving behaviour, Broadstone says it’s too early to be sure.
David Brooks, head of policy at Broadstone, said: 'The data highlights current withdrawal behaviour but it does not capture how the rate of access evolves over the long term.'
He added: 'Some individuals may be choosing to front-load income in early retirement or meet temporary financial needs, so the headline figures need not imply a permanent, year-on-year pattern.'
- Find out more: best pension drawdown providers 2025
What is the 4% rule?
The so-called ‘4% rule’ has guided pension withdrawals for more than 30 years. It was originally devised by financial planner William Bengen in the Journal of Financial Planning in 1994.
It suggests withdrawing 4% of your pension pot in the first year of retirement, then taking the same amount each year adjusted for inflation. The idea is that this rate should provide a steady income while reducing the risk of your savings running out too soon.
The rule assumes your pension investments are split roughly half in shares and half in government bonds, so the returns you earn help cover withdrawals without depleting your capital too quickly.
For those with larger pots, it’s also a way to limit withdrawals and preserve remaining savings to pass on free from inheritance tax and income tax if death occurs before age 75.
Although not a hard rule, it remains a popular benchmark for managing pension drawdowns, particularly for those wanting to balance income needs with long-term sustainability.
- Find out more: what is pension drawdown?
Is the 4% still a realistic target?
There is no limit to how much you can withdraw from your pension each year, but the aim of the game is to make it last as long as you do.
With pensions set to be included in IHT calculations from 2027, more people may choose to use up their savings in full rather than leave them to loved ones.
Wealth manager Evelyn Partners has calculated that a slightly higher withdrawal rate – around 6% – could make sense for those who want to spend their entire pot by around age 90.
The table shows how much annual income you could take at different withdrawal rates. The figures are based on a 67-year-old drawing income until age 90, assuming 6% annual investment growth.
| Pension pot size | Remaining after 25% tax-free cash | Annual income at 4% | Amount left aged 90 | Annual income if around 6% |
|---|---|---|---|---|
| £100,000 | £75,000 | £3,000 | £118,000 | £4,900 (6.5%) |
| £500,000 | £375,000 | £15,000 | £591,000 | £23,500 (6.3%) |
| £1m | £750,000 | £30,000 | £1,182,000 | £44,500 (6%) |
Source: Evelyn Partners
These examples show that while the 4% rule remains a useful starting point, your ideal withdrawal rate will depend on your investment growth, spending needs and how long you expect your savings to last.
- Find out more: how much will I need to retire?
4 steps to take before drawing your pension
Before you start withdrawing from your pension, either through drawdown or lump sum, there are a few things you need to consider. These include:
1. Calculate your withdrawal rate
The 4% rule isn't for everyone, so you’ll need to work out how much you can afford to take out. The right level of drawdown will depend on the size of your pension pot, your investment strategy, and how long you expect to live.
You can use our pension drawdown calculator to get a better idea of how long your savings might last. You can adjust your investment mix, how much income you want to take, and your assumptions about investment returns to see what impact it could have
- Find out more: pension drawdown calculator – making your money last
2. Check drawdown costs
Having a flexible pension plan gives you more control, but – as always – it comes with a cost.
Fees for setting up the plan, running the account and managing your investments will all be taken directly out of your pension pot.
Before you start withdrawing from your pot, look at what your provider is charging and factor these fees into your expected income. If they’re too high, shop around to find another provider that suits you better.
3. Review your plan regularly
Regularly checking your pension drawdown will help you make informed decisions about your retirement savings.
By keeping a close eye on your fund’s performance, you can guard against running out of money by cutting back on withdrawals if your returns are lower than planned. Then, if your investments perform better than expected, you have the option to safely take out a bit more.
- Find out more: how long does my pension need to last?
4. Avoid pension recycling
One pension rule people sometimes forget about with drawdown is ‘pension recycling’. This rule stops you from taking your 25% tax-free lump sum and then paying it straight back into your pension to get more tax relief on the same money.
HMRC doesn’t allow you to benefit from a tax break twice, so if you break the recycling rules, you could end up paying tax on the entire lump sum you initially took out tax-free.
If you plan to reinvest any tax-free cash back into a pension, it’s really important to get professional advice first so you don’t accidentally land yourself with a big tax bill.
