Can I Take Money from My Pension Plan at 55 and Still Work?

Navigating the intricacies of pension plans can often feel daunting, especially when you’re considering accessing your pension at 55 while still working. Whether motivated by financial necessity or a strategy for phased retirement, understanding how to manage this can significantly impact your financial health. 

This comprehensive guide will explore the rules, implications, and strategies for accessing your pension at 55, ensuring you make an informed decision.

Understanding the Basic Rules of Pension Withdrawal at 55

At the moment, you can access a pension pot at the age of 55, regardless of whether you’re still employed. 

Typically, up to 25% of your pension can be taken as a tax-free lump sum, with any further withdrawals taxed as income. This early access could impact your long-term financial stability by reducing the funds available in later retirement.

Pension schemes differ in withdrawal flexibility. Defined Contribution Pensions allow various options like lump sums, buying an annuity, or drawdowns. Defined Benefit Schemes, or final salary pensions, often offer less flexibility and might reduce benefits if accessed early. These are based on your earnings and tenure with your employer.

Note that the minimum pension withdrawal age will increase to 57 in 2028, which is crucial for future planning. Understanding these rules is vital for making informed decisions about accessing your pension.

Tax Implications of Early Pension Withdrawal

Understanding the tax implications is crucial when you withdraw from your pension early. You can take up to 25% of your retirement as a tax-free lump sum at 55. Any amount withdrawn beyond this is taxed as income. This means it adds to your yearly earnings and could push you into a higher tax bracket, increasing the amount of tax you owe.

Planning your withdrawals carefully can help manage the tax burden. For example, spreading your withdrawals over several years can keep you in a lower tax bracket, reducing the total tax paid. Calculating how much money you take out each year is important, especially if you’re still earning from work is essential.

Consider consulting with a financial advisor to strategise your withdrawals effectively. They can provide tailored advice to minimise taxes and ensure that your pension lasts throughout your retirement.

Continuing Employment After Pension Withdrawal

Opting to continue work post-pension withdrawal is increasingly common, offering financial psychological and social benefits, such as maintaining a sense of purpose and keeping socially active. Here’s what to consider if you choose this route:

  • Impact on Further Pension Contributions: Continuing to work could allow you to keep contributing to your pension. Contributions to a pension can still benefit from tax relief, subject to annual allowances.
  • Employer Contributions: If applicable, your employer might continue contributing to your pension scheme, enhancing your potential retirement pot even further.

Financial Planning with Early Pension Access

Accessing your pension early while continuing to work necessitates meticulous financial planning. Here’s how you can manage your finances effectively:

  • Budgeting: Incorporate your pension income into your monthly budget. Plan how you’ll use this income to meet your current needs while considering future retirement needs.
  • Investment Strategy: Withdrawing from your pension could affect your investment strategy. Adjust your investment plans to align with your new financial circumstances and risk tolerance.

The Benefits of Seeking Professional Financial Advice

The decision to access your pension early while continuing to work is complex and can benefit significantly from professional advice. A financial advisor can help:

  • Tailor Personal Financial Advice: Offer guidance based on your financial situation, helping you understand the best times and methods to access your pension.
  • Develop a Robust Financial Plan: Help craft a financial plan that balances immediate needs with long-term retirement goals.

Alternatives to Early Pension Withdrawal

If you’re considering accessing your pension early but are still deciding, there are alternatives to explore that could meet your financial needs without dipping into your retirement funds. One option is investing in an Individual Savings Account (ISA). ISAs offer tax-free growth and withdrawals, providing a flexible way to save for the future without the tax implications of pension withdrawals.

Another alternative is to keep building your savings in a high-interest savings account. This approach keeps your funds accessible for emergencies or other immediate needs without the potential tax penalties of an early pension withdrawal.

Finally, continue contributing to your pension. This increases your future pension pot and takes advantage of tax relief on contributions, which can significantly boost your savings over time. Exploring these options can help maintain your pension reserves intact for when you truly need them in retirement.

Long-term Considerations for Early Pension Access

Accessing your pension early can have significant long-term impacts on your financial security. When you withdraw funds prematurely, it reduces the overall amount available during your later retirement years. This might mean you have less money to cover your needs as you age, mainly if your retirement lasts longer than anticipated.

It’s also important to consider the effect on your investment growth. Withdrawing early reduces the capital that could otherwise benefit from potential investment returns over time. This compounding effect is crucial in growing your pension pot.

Therefore, consider your long-term financial health before accessing your pension early. Consider how you will manage your expenses in later life and whether your remaining pension after early withdrawal will be sufficient. Planning and understanding these impacts will help you maintain a comfortable lifestyle throughout retirement.


Accessing your pension at 55 while continuing to work offers both opportunities and challenges. By thoroughly understanding your pension’s rules, assessing your financial situation, and considering the long-term implications, you can make a decision that meets your immediate financial needs and secures your financial future. Remember, careful planning and professional advice are key to navigating this complex decision effectively.