Capped income drawdown and review dates

Capped income drawdown involves taking a pension directly from a fund instead of buying an annuity. There is, however, a limit on the maximum amount of income that can be withdrawn during a year and this limit is reviewed on a frequent basis.
Key facts
  • Since 6 April 2015 it hasn't been possible to take out a new capped drawdown plan.
  • The plan will automatically convert to a flexi-access drawdown plan if income exceeds the maximum amount.
  • Reviews have to take place at least every three years.
  • Reviews can be triggered by certain events or can be requested by the member.
  • In most cases, the maximum income that can be taken from a drawdown plan will change at each review.
  • Transfer from an existing capped drawdown plan to a new capped drawdown plan is allowed.

How is the maximum amount of income calculated?

Under a capped income drawdown contract, a tax-free cash sum of up to 25% of the fund is paid to the member. The remainder of the pension pot can then be used to provide the member with income. 

The maximum amount of income that can be taken during a 'pension year' is 150% of the Government Actuary's Department (or GAD as it's affectionately known) relevant annuity with no guarantee.

The member can take any level of income they like from their fund up to this maximum limit.

What's a 'pension year'?

The maximum amount of income allowed applies for a 12 month period immediately after first taking income and any subsequent 12 month period. These 12 month periods are known as 'pension years'.


To make sure that the income drawdown fund continues to provide an income and isn't used up too quickly, the maximum income that can be taken is reviewed. For members under age 75 this is done on the following basis:

  • at least every three years (previously every five years) 


  • as a result of certain events
  • when the member requests an additional review

Let's look at each of the above now in turn.

Three year reviews

As a minimum, a review now has to take place at least every three years. Each three year period is known as the 'reference period'. The point at which a review is carried out is called the 'reference date'.

The first reference date is on the first day of the fourth pension year following the designation of income drawdown, then again on the first day of the seventh year and so on. This continues until one of the following events occur:

  • the entire pension fund is used to buy a lifetime annuity
  • the plan is converted to a flexi-access drawdown fund
  • the member dies

At the review date the new maximum income is calculated in exactly the same way as the initial maximum with reference to the GAD tables, value of the income drawdown fund and member's age. The new limit for the next three years is then set at 150% of the revised amount.

The maximum amount of income normally changes following a review. By how much depends on the investment performance of the fund, the amount of income taken during the reference period and the GAD interest rate at the time of review. If the fund has benefited from strong investment growth and a low income has been taken, the maximum level of income may rise. Conversely, if fund performance has been poor and maximum income has been taken, the new limit is likely to be lower than before. Also, the higher the GAD interest rate the higher the relevant annuity on which the GAD limit is based.

Additional reviews

In addition to the basic requirement of a review taking place every three years, certain events trigger an additional review. These reviews don't alter the existing pension year or reference period structure, or indeed the timing of the next three yearly review:

When a lifetime annuity or scheme pension is purchased by part of the fund
  • the scheme administrator must re-calculate the maximum amount on the day the annuity is purchased.
  • the calculation is based on the fund value immediately after the purchase and the member's age on that day.
  • new limit doesn't apply to the pension year that the lifetime annuity or scheme pension is purchased, it applies from the start of the next pension year.
The fund is reduced following a pension sharing event
  • calculation takes into account the reduction in the fund caused by the pension sharing order.
  • new limit doesn't apply to the pension year that the pension sharing order comes into effect, it applies from the start of the next pension year.
Where additional fund designation occurs
  • the calculation of the new maximum income must take place on the same day as the additional fund designation occurs.
  • the new income limit takes effect immediately and alters the existing limits for the current pension year.
  • a review is still needed where additional fund designation occurs in the last year in a three year reference period.
  • where additional fund designation occurs towards the end of a three year reference period, the value of the fund may have decreased to such an extent that even with the additional funds, the overall value of the fund has decreased.
Where there is full annuitisation and later designation of uncrystallised funds occurs under the arrangement
  • if the member uses all the fund to purchase a lifetime annuity contract or a scheme pension then no income drawdown can be paid, either in the current or later pension years.
  • if further money from the pension fund is moved into the income drawdown fund in the same pension year, the same reference period is used as before.

Member requests an additional review

Of course, members don't have to wait three years or for one of the above events to occur. They can request additional reviews but the final decision as to whether to grant one or not lies with the scheme administrator. The new limits apply from the start of the next pension year and can't start immediately.

Let's take a typical example by looking at a scheme's first three pension years. These form the first reference period:

  • 1 October 2014 to 30 September 2015 (the first pension year)
  • 1 October 2016 to 30 September 2016 (the second pension year)
  • 1 October 2016 to 30 September 2017 (the third pension year)

As the member's pension fund had performed very well since the maximum amount was first calculated on 1 October 2014, they wanted to draw a higher income. Consequently, if on or before 30 September 2016 the member made a request for a new reference date of 1 October 2016 and the scheme administrator agrees, the new reference period for the arrangement will look like this:

  • 1 October 2016 to 30 September 2017 (the first in this new reference period but the third overall pension year)
  • 1 October 2017 to 30 September 2018 (the second in this new reference period)
  • 1 October 2018 to 30 September 2019 (the third in this new reference period)

What happens at age 75?

Reaching age 75 is a benefit crystallisation event (BCE) and so the drawdown fund will be tested against the lifetime allowance. Obviously, going into drawdown in the first place was also a BCE so, to avoid 'double counting' against the lifetime allowance, the amount originally crystallised when the member went into drawdown is deducted. Only the balance (if any) counts as an additional BCE amount.

The review dates also change - the maximum drawdown pension will now need to be recalculated at the start of every pension year. The switch over to yearly reviews will happen at the end of the pension year following the member's 75 birthday.

Is it possible to transfer an existing capped drawdown plan to a new capped drawdown plan?

Yes it is.  However, the existing pre April 2015 rules still apply where the capped drawdown plan can only be transferred to an empty arrangement containing no other sums or assets.

There is more information in HMRC's  Pensions Tax Manual - Transfers in drawdown.


In most situations the maximum income that can be taken from a drawdown plan will change at each review, depending on investment performance,the amount of income taken and the prevailing GAD interest rate. Members also need to be aware that certain actions e.g. designating additional funds, will trigger a review.

Published 26 February 2008


The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice.

Any research and analysis has been provided by us for our own purposes and the results of it are being made available only incidentally.

Last updated: 07 Apr 2016

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