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 There is, however, a limit on the maximum amount of income that can be withdrawn during a year and this limit is reviewed on a frequent basis.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 or the member flexibly accesses pension funds under another pension plan. 
  • 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.
  • PTM062500: Capped drawdown


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.  


  • 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 (under age 75)

As a minimum, a review 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.

PTM062560: review triggered by specific events

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.
  • If this produces a higher maximum income the higher amount will apply immediately. If it produces a lower maximum, the lower amount will apply from the next 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.

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 pension years. These form the first reference period:

Period Pension year Review period Maximum income
1 October 2014 to 30 September 2015 First First  Calculated
1 October 2015 to 30 September 2016 Second First  As previous pension year
1 October 2016 to 30 September 2017 Third First  As previous pension year
1 October 2017 to 30 September 2018 Fourth Second Re-calculated
1 October 2018 to 30 September 2019 Fifth Second As previous pension year 
1 October 2019 to 30 September 2020 Sixth Second As previous pension year 

As the member's pension fund had performed very well since the maximum amount was last calculated on 1 October 2017, they want to draw a higher income. Consequently, if on or before 30 September 2019 the member makes a request for a new reference date of 1 October 2019 and the scheme administrator agrees, the new reference period for the arrangement will look like this:

Period Pension year Review Period Maximum income
1 October 2019 to 30 September 2020 Sixth Third Re-calculated 
1 October 2020 to 30 September 2021 Seventh Third As previous pension year 
1 October 2021 to 30 September 2022 Eigth Third As previous pension year

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.

PTM088650: BCE 5A: age 75 having previously designated funds as drawdown pension

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.


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. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.

All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.

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The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.