Yes, you can take your pension at 55 and keep working, but the rules depend on your pension type and your employer

Most people can withdraw money from their pension from age 55 onwards, even if they continue in employment. However, "can" and "should" are different questions. Taking your pension early while still working affects your tax bill, your future pension income, and sometimes your employment status. The rules also differ sharply between defined benefit pensions (a may provide amount each month) and defined contribution pensions (a pot of money you've built up).

Your employer cannot force you to stop working when you access your pension, and they cannot stop you from accessing it. But they can set their own rules about whether you continue in the same role, and taking money out changes how much you'll have later. Before you take action, you need to understand which type of pension you have, what your employer's policy says, and what the tax consequences are.

Key Takeaways

  • You can access a defined contribution pension from 55 onwards while still employed, but a defined benefit pension has stricter rules that depend on your scheme.
  • Taking your pension early while working means you pay income tax on the money you withdraw, and you lose the chance to let that money grow.
  • Your employer cannot legally prevent you from accessing your pension, but they may have policies about your continued employment or role after you do.
  • If you take a lump sum from a defined contribution pension, 25 percent is usually tax-free, but the rest is taxed as income at your marginal rate.
  • Delaying your pension withdrawal by even a few years can significantly increase your lifetime income because the money continues to grow and you have fewer years to spend it over.

Defined Contribution Pensions: Your Options at 55

A defined contribution pension is a pot of money built from your contributions, your employer's contributions, and investment growth. From age 55, you have several ways to access it while staying in work. You can take a tax-free lump sum (usually 25 percent of the pot), leave the rest invested and draw an income from it, buy an annuity (a may provide income for life), or a combination of these.

The key point: you do not have to take all the money at once, and you do not have to stop working. Many people take a small lump sum for a specific purpose—paying off a debt, funding a home repair—and leave the rest untouched. This lets the remaining pot keep growing while you're still earning a salary. You can also take money out in stages over several years, which spreads the tax impact.

However, every pound you withdraw is added to your income for that tax year. If you're still earning a salary and you withdraw £20,000 from your pension, your total taxable income for the year is your salary plus £20,000. This can push you into a higher tax bracket. If you're earning £40,000 and withdraw £15,000, you might move from the basic rate (20 percent) into the higher rate (40 percent) on part of the withdrawal.

Defined Benefit Pensions: Stricter Rules

A defined benefit pension (also called a final salary or career average pension) pays you a fixed amount each month for life, calculated by a formula based on your salary and years of service. The rules for taking this at 55 are much tighter, and they depend entirely on your scheme's rules.

Some defined benefit schemes allow you to take your pension from 55 while still working for the same employer. Others require you to leave the employer first, or to reduce your hours below a certain threshold. A few schemes do not allow early access at all before your normal retirement age (often 65 or 67). You must check your scheme's documentation or contact your pension provider to know which rule applies to you.

If your scheme does allow it, taking your pension early usually means a permanent reduction in the amount you receive. The scheme calculates what you would get at your normal retirement age, then reduces it because you're taking it earlier and the scheme will pay it for longer. This reduction is typically 3 to 5 percent per year of early access, though it varies by scheme. Taking your pension five years early could mean 15 to 25 percent less income for life.

Tax When You Take Your Pension While Working

The tax treatment depends on how much you withdraw and what your other income is. If you take a lump sum from a defined contribution pension, the first 25 percent is tax-free. The remaining 75 percent is added to your income and taxed at your marginal rate—the same rate you pay on your salary.

For defined benefit pensions, the entire monthly payment is taxable income. It's added to your salary for tax purposes. If you're still earning £40,000 and your pension pays £10,000 a year, your total taxable income is £50,000. You pay tax on the full amount according to the tax bands for that year.

You may be able to claim a higher Personal Savings Allowance or other reliefs if your income drops below certain thresholds, but while you're working, those thresholds are usually not relevant. The best way to understand your own tax position is to use the HMRC tax calculator on the government website, or to speak to a tax professional who can model different withdrawal amounts for you.

Your Employer's Rights and Restrictions

Your employer cannot prevent you from accessing your pension at 55. This is a legal right, and they cannot make it a condition of employment that you do not touch your pension. However, they can have policies about what happens to your job after you access it.

Some employers treat pension access as a trigger for retirement, even if you want to keep working. Others allow you to stay in your current role. Some require you to move to a different position or reduce your hours. These policies vary widely and are not regulated by pension law—they're part of your employment contract and company policy.

Before you access your pension, check your employee handbook or ask your HR department what their policy is. If you want to keep working in your current role, you need to know whether accessing your pension will change that. If the policy is unclear or seems unfair, you may want to discuss it with your employer before you make a withdrawal.

The Cost of Taking Your Pension Early

Taking your pension at 55 instead of waiting until 65 or 67 has a real financial cost. If you have a defined contribution pension, the money you withdraw stops growing. If you take £50,000 at 55 and leave the rest invested, that £50,000 earns no more returns. Over ten years, depending on investment performance, that could represent tens of thousands of pounds in lost growth.

With a defined benefit pension, the cost is built in: you receive a lower amount for life. If your scheme reduces your pension by 4 percent per year for early access, taking it ten years early means 40 percent less income permanently. Over a 30-year retirement, that's a substantial loss.

The other cost is tax. If you're still working and earning a good salary, withdrawing your pension pushes you into higher tax brackets. You pay more tax on the withdrawal than you would if you took it after you'd stopped working and your income was lower. This is one reason many people wait until they've left their job to access their pension.

Alternatives to Consider Before Age 55

If you need money now and you're close to 55, it's worth exploring whether you actually need to touch your pension. Pension money is protected—creditors cannot claim it, and it's designed to last your whole life. Once you withdraw it, it's gone, and you cannot put it back.

If you need cash for a specific purpose, consider whether you can borrow against other assets, reduce your spending, or increase your income in other ways. If you're thinking about retiring early, calculate whether you can live on your salary alone for a few more years, then take your pension when you stop working. The tax saving alone might be worth waiting.

If your employer offers flexible working or part-time options, reducing your hours might let you live on less salary without touching your pension. This keeps your pension growing and avoids the tax hit of combining earned income with pension withdrawals.

Frequently Asked Questions

Will my employer learn about I take my pension while still working?

Your pension provider will not tell your employer automatically. However, if your employer has a policy that triggers when you access your pension, you'll need to inform them yourself. Some schemes require employer consent or notification. Check your scheme rules and your employment contract.

Can I take my whole pension as a lump sum at 55?

With a defined contribution pension, yes—you can take the whole pot, though only 25 percent is tax-free and the rest is taxed as income. With a defined benefit pension, you usually cannot take a lump sum; you receive a monthly payment instead. Some schemes offer a one-time lump sum option, but it's rare and the amount is heavily reduced.

What happens to my pension if I keep working after 55?

If you leave your pension pot invested and do not withdraw from it, it continues to grow. If you're still making contributions through your employer, those contributions keep going in (unless your employer stops them when you access your pension—check their policy). The longer you leave it, the more it grows.

Will taking my pension affect my benefits?

If you're receiving means-tested benefits like Universal Credit or Pension Credit, a pension withdrawal counts as income and may reduce your benefit. If you're not on means-tested benefits, it will not affect them. Speak to the benefit provider before you withdraw if you're unsure.

Can I put money back into my pension after I've withdrawn it?

No. Once you've withdrawn money from your pension, you cannot return it. You can continue to make new contributions to a pension, but the money you've taken out is gone. This is why it's important to think carefully before you withdraw.