Can I take money from my pension plan at 55 and still work?

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Want to know if you can start taking money from your pension but keep working and saving? The short answer is yes, you can. But here are some things to think about first.

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There are lots of reasons why you might want to take some of your pension savings while working and paying into your plan. Maybe you want to be able to afford to go part-time at work, pay off the rest of the mortgage or enjoy that holiday of a lifetime. Or maybe the money could help to support your children through school or university. 

Whatever your reasons, it’s your money and your choice. Just be aware of these five things before you make your decision.

1. The minimum pension age is going up

Right now, most people can start to take money from their pension at age 55. But this will rise to age 57 from 6 April 2028, and it may change again in the future. 

If you were born on or before 6 April 1971 then this won’t impact you. However, if you were born after 6 April 1971, this change could impact your plans if you were thinking of accessing your money at 55.

You can read our article to find out more about the change and how it might affect you.

2. There’s a limit to how much you can pay in

Every tax year you get a pension annual allowance. This is the total amount you, your employer and any third party can pay into your pension plans. It’s currently £60,000 or your total salary – whichever is lower. If you pay in more than this then you might face a tax charge.

However, once you start taking taxable money from your plan (that’s anything over your tax-free entitlement, which is usually 25% of your pot), then your annual allowance will reduce. It’ll go from £60,000 down to £10,000, which is known as the money purchase annual allowance.

The money purchase annual allowance more than doubled in 2023, going from £4,000 to £10,000. This change makes continuing to pay into a pension in retirement much easier than it was before, which is good news. But keep in mind the difference between £60,000 and £10,000 is still huge, and a really important thing to be aware of when you start taking your pension money.

3. It can still make sense to continue paying in

Despite the reduced allowance, paying into a pension plan can still make sense, whatever your age. 

Pension plans come with a range of benefits to give you a helping hand when it comes to saving for your future – from tax relief on your payments to your employer paying in too. And those benefits stick, even when you start taking money from your plan.

4. There are pros and cons

Maybe the biggest thing to consider is whether you should actually take money from your pension at age 55 at all. 

On one hand, the extra money could come in handy and, depending on your situation, could even be a bit of a lifeline. It could allow you to reduce your working hours, pay off debts or improve your lifestyle overall.

On the other, you could benefit from leaving your pension money alone for as long as possible; the longer you leave it invested, the more potential it has to grow. But remember, that's not guaranteed. Its value could go down as well as up and it's possible you could lose money.

It’s also important to think about how taking your money at 55 could impact your retirement in the future. For example, if you choose to buy a guaranteed income – also known as an annuity – that could give you a regular, guaranteed income throughout your retirement. However, the younger you are when you buy the annuity, the lower your yearly income is likely to be. 

If you choose to take your money as a flexible income – also known as drawdown – you’ll be in control of how much you take and when. Keep in mind you won’t get your State Pension until your late 60s, so, with this option, there’s a possibility that your money could run out. You’ll need to carefully consider how much you’re taking now, and whether it could impact your quality of life later in retirement. Remember, people are living longer these days, so you may need your pension pot to last a while.

5. Get support or advice

Taking money from your pension is a big decision. So here’s a list of places and resources you can use to get help and support.

• To help you get a better understanding of much you might need in retirement, read How much do I need to retire?
• To find out what your retirement options are, contact your pension provider.
• You can get free impartial guidance with Pension Wise, a service from MoneyHelper, if you're aged 50 or over. Go to their website or call 0800 011 3797.
• You might want to take advice on something so important. If you don’t have an adviser, you can find one local to you at unbiased.co.uk. 

The information here is based on our understanding in March 2024 and shouldn’t be taken as financial advice.

Laws and tax rules may change in the future and your own personal circumstances, including where you live in the UK, will have an impact on tax.