Can I Take My Pension and Carry On Working?

Retirement doesn't have to happen on a Friday afternoon

There's a traditional picture of retirement. Friday: leaving card, cake, slightly awkward speech. Monday: slippers.

It doesn't have to work like that. Increasingly, people want to slow down rather than stop.

Perhaps you work: five days → three days → two days → retirement.

Your pension could potentially help replace some of the earnings you've given up.

This is often referred to as phased retirement.

Steve's observation

I think we've made retirement unnecessarily binary.

You're either working or retired. But why?

If you've spent 40 years building pensions and savings, perhaps they can start buying you something before they buy you complete retirement.

They might buy you Fridays. Then perhaps Mondays as well.

Sometimes financial independence begins with getting some of your week back.

Can I legally claim my pension and continue working?

Usually, yes.

GOV.UK confirms you can normally claim pension benefits while continuing to work provided you have reached the relevant age for the pension concerned.

For a workplace or personal pension, that means reaching the applicable pension-access age and meeting the scheme's rules.

For State Pension, you need to have reached State Pension age.

Taking pension benefits does not, by itself, require you to resign from your job.

When can I access my private pension?

Most people can currently normally access registered private pension benefits from age 55, subject to pension scheme rules and exceptions.

The normal minimum pension age is due to increase to 57 from 6 April 2028 for most people, although protections and transitional provisions can apply.

If you're not sure when your own pension can be accessed, see ODW-WP-015 — When Can I Take Money From My Workplace Pension?

Why would I take my pension while still working?

There can be several reasons. Perhaps you want to:

• reduce your working hours;
• move into a lower-paid role;
• fund more holidays;
• support your household while your partner retires;
• gradually transition into retirement;
• or simply have greater financial flexibility.

Imagine you currently earn £45,000 working five days a week. You reduce to three days and your earnings fall. You might consider using some pension income to help replace part of the lost salary.

That can potentially allow you to buy back time without stopping work completely.

But the decision needs to be considered in the context of tax and future pension contributions.

Salary plus pension can mean more tax

This is one of the first things to understand. Pension income does not sit in a separate tax universe.

HMRC looks at your total taxable income. That can include:

• earnings;
• State Pension;
• workplace pension income;
• personal pension income;
• taxable savings or investment income;
• property income;
• and other taxable income.

GOV.UK confirms that private pension and employment income are considered together when calculating Income Tax liability.

So if you earn £35,000 from work and take £15,000 of taxable pension income, your tax calculation is not based on either number independently. The taxable amounts form part of your overall income for the tax year.

Is all pension money taxable?

Not necessarily.

Depending on the type of pension and how benefits are taken, some pension benefits may potentially be paid free of Income Tax within the applicable pension tax rules and allowances.

Other withdrawals can be taxable as income. The exact treatment depends on how benefits are taken.

That's one reason not to think of "taking my pension" as one single option. There are several ways pension benefits can potentially be accessed.

For an overview, see ODW-WP-016 — What Are My Options for Taking Money From My Workplace Pension?

The big trap: the Money Purchase Annual Allowance

This is one of the most important parts of this guide.

If you have a defined contribution pension and flexibly access taxable pension income, you can potentially trigger the Money Purchase Annual Allowance — MPAA.

That can matter enormously if you are still working and still contributing heavily to a pension.

Why does the MPAA matter?

Imagine you're still employed. Between your contribution, your employer's contribution, and perhaps additional payments, £18,000 a year is currently going into your defined contribution pension.

You then flexibly take taxable pension income and trigger the MPAA.

Your future defined contribution pension savings now have to be considered against a much lower allowance. That could create tax consequences if contributions continue above the applicable limit.

So someone could accidentally restrict their future pension-saving capacity simply because they took money from a pension without understanding the rules first.

Does every pension withdrawal trigger the MPAA?

No. This distinction is very important.

The MPAA is generally associated with flexibly accessing taxable benefits from defined contribution pensions.

Certain actions do not necessarily trigger it. For example, MoneyHelper explains that simply taking a pension commencement lump sum without starting flexible taxable income does not by itself necessarily trigger the MPAA.

Other pension-access methods can have different treatment.

Because this is a technical area, don't decide whether the MPAA applies based on a sentence on the internet. Check the exact method by which your pension benefits will be taken.

What happens if I trigger the MPAA?

HMRC requires pension providers to issue a flexible-access statement when a person first flexibly accesses benefits in a way that triggers the relevant rules.

There are also responsibilities around notifying other schemes where appropriate.

If you're continuing to make substantial pension contributions, this becomes particularly important.

The crucial lesson is simple: taking money out and continuing to put substantial money back in can have consequences.

What about my employer's pension contributions?

If you continue working and remain eligible for your workplace pension, contributions may potentially continue. That can include employer contributions.

But if the MPAA has been triggered, employer contributions to defined contribution pensions count towards that limit as well.

So don't think: "I only personally contribute £5,000, therefore I'm under £10,000." If your employer contributes another £6,000, the total relevant contribution is £11,000.

The employer contribution matters too.

Can I keep contributing after taking my pension?

Often, yes. The key issues are:

• whether the pension scheme permits it;
• your earnings;
• tax-relief rules;
• the Annual Allowance;
• whether the MPAA has been triggered;
• and employer scheme rules.

So taking pension benefits does not automatically mean pension saving stops. But the rules applying to future contributions may change depending on how benefits were accessed.

What if I've got a defined benefit pension?

Defined benefit pensions are different. You may be able to start receiving a DB pension and continue working. But the scheme's rules matter.

In some circumstances your employment status or working hours can affect benefits.

If you're taking a workplace DB pension from the same organisation you continue working for, check the scheme rules rather than assuming every arrangement works identically.

The MPAA is principally relevant to flexible access of defined contribution pension benefits, not simply receiving normal defined benefit pension income.

Can I take my State Pension and keep working?

Yes. GOV.UK confirms you can continue working after State Pension age and claim State Pension at the same time.

You are not generally required to stop working because State Pension begins.

You can also choose to defer claiming State Pension. If you defer, your eventual weekly State Pension may be higher under the applicable rules.

Whether deferral is worthwhile is a separate financial decision and should not be assumed automatically.

What about National Insurance after State Pension age?

For employees, National Insurance contributions generally stop once you reach State Pension age, although Income Tax can still apply to earnings.

GOV.UK confirms that people can continue working beyond State Pension age without paying employee National Insurance contributions, subject to the applicable rules.

That does not mean earnings become tax-free. Salary and taxable pension income can still create an Income Tax liability.

Could taking pension money push me into a higher tax band?

Potentially. For example, suppose someone has salary, plus pension income, plus rental income.

Looking at the pension withdrawal alone may make it seem relatively modest. But added to the other taxable income, it could affect the rate of tax applying to part of their income.

This is why retirement-income planning should generally look at the whole tax year, not individual pension withdrawals in isolation.

What if I only reduce my hours?

This is where combining work and pensions can become particularly useful.

Imagine you want to move from five days to three. Your reduced salary still covers most household expenditure. Perhaps pension income then only needs to cover a relatively small gap.

That can be very different from stopping work entirely and asking your pensions to replace your whole salary.

It can also mean your pension assets remain largely invested for longer.

Could I reduce my hours without touching my pension?

Of course. And that's worth comparing.

Suppose your spending naturally falls when you stop commuting five days a week. Perhaps your reduced salary already covers your lifestyle.

In that case you might decide pension access isn't necessary yet.

MoneyHelper notes that delaying pension benefits can provide additional time for defined contribution investments to potentially grow and can also affect the eventual income from some pension arrangements.

There is no rule saying: "You've reached pension age, therefore you must start taking it."

Steve's observation

This is where I think retirement planning becomes much more interesting.

Maybe you don't need your pension to replace your salary.

Maybe you only need it to replace: Tuesday and Wednesday.

If that gives you the lifestyle you want without putting unnecessary pressure on the pension, that's worth understanding.

Should I take pension money just because I can?

Not necessarily. Pension access gives you an option. It doesn't create an obligation.

Before withdrawing money, consider what you're trying to achieve. Is it:

• replacing reduced salary?
• funding a large purchase?
• creating additional disposable income?
• stopping work earlier?
• helping family?
• simply taking money because you've reached the access age?

That final reason deserves particular attention. "Because I can" isn't really a retirement strategy.

What if I take money and pay it straight back into a pension?

Be careful. Pension rules contain restrictions designed to prevent people recycling pension tax-free cash into new pension contributions primarily to obtain additional tax advantages.

This can be a technically complicated area.

If you are taking significant pension benefits while simultaneously making substantial pension contributions, the position should be checked carefully rather than assuming the transactions are completely independent.

Could I use pension income to clear my mortgage while still working?

Potentially, but that does not automatically make it sensible. You need to consider:

• pension taxation;
• mortgage interest;
• lost future pension assets;
• investment risk;
• emergency reserves;
• future retirement income;
• and your wider financial position.

Using pension benefits simply because a mortgage exists can solve one problem while creating another.

Working longer can change what your pension has to do

Suppose you start drawing a small pension while working three days a week. Your salary continues covering much of your expenditure. That means your pension may be doing a relatively small job.

Later, when employment stops completely, the pension's role increases. Later again, State Pension may begin.

This is why salary + private pension + State Pension should be thought of as a timeline rather than three unrelated income sources.

We've already covered building that picture in ODW-RP-007 — How Do I Work Out My Total Retirement Income?

Couples don't have to retire together

One partner may continue working. The other may retire. Or both might reduce hours at different times. That creates several potential income sources:

• salary from one partner;
• salary from the other;
• pension income;
• savings;
• later State Pensions.

There is no requirement for a household to have one retirement date. Sometimes staggered retirement creates significantly more flexibility.

Is phased retirement better than stopping completely?

Not automatically. But it can offer advantages. It may:

• maintain some earnings;
• reduce pension withdrawals;
• preserve employer benefits;
• allow continued pension saving;
• make the transition psychologically easier;
• and provide more free time.

For somebody who enjoys their work but wants less of it, that can be particularly attractive. For somebody who absolutely hates their job, three days may simply mean three days too many.

Financial planning can show what's possible. The lifestyle decision remains yours.

What Should I Do Next?

If you're thinking about taking pension benefits while continuing to work, write down the answers to these questions before taking any action.

• Your current earnings
• Your expected earnings after reducing hours
• Your existing pension contributions
• Your employer pension contributions
• The pension benefits you're considering taking
• Whether any of those benefits are taxable

Then ask:

• Will taking this pension trigger the MPAA?
• What will my combined taxable income become?
• Do I actually need the pension income yet?
• What happens to my later retirement if I take it now?

Those questions should come before the withdrawal form.