Can You Take Your Pension and Still Work?

One of the most common questions people ask as they approach their mid-fifties is a simple one: can I start taking money from my pension and carry on working? The short answer is yes. Accessing your pension and "retiring" stopped being the same thing back in 2015, when the pension freedoms arrived. You can take a tax-free lump sum, draw an income, or do both while staying in your job. But the way pension income interacts with your salary, your tax bill and your ability to keep paying in catches a lot of people out — and some of those traps are expensive to undo.

This guide explains the rules that matter most when you mix earnings and pension income in the same tax year, so you can see the full picture before making any decisions.

Accessing your pension no longer means stopping work

Since April 2015, defined contribution (DC) pension savers have had full flexibility over how and when they take their money from the normal minimum pension age. You do not have to leave your employer, cut your hours, or declare yourself "retired" to your provider. Plenty of people use this flexibility to:

• Take their 25% tax-free cash to clear a mortgage or other debt while still earning;
• Top up a reduced salary after dropping to part-time or a less demanding role;
• Draw an income in the years before the State Pension begins; or
• Simply test the water before fully retiring.

The flexibility is real — but so are the tax consequences, because HMRC treats pension money very differently depending on which part you take.

From what age can you do this?

The earliest you can normally touch a personal or workplace DC pension is the normal minimum pension age (NMPA), currently 55. From 6 April 2028 this rises to 57. Some older scheme members hold a protected pension age that lets them access earlier, and a small number of schemes set their own higher age, so it is always worth checking the rules of your specific plan.

If you are weighing up drawing income now versus waiting until the State Pension starts, our guide to funding the gap to State Pension age looks at that trade-off in detail.

Tax-free cash: the part that leaves your earnings alone

Up to 25% of your pension can usually be taken as a tax-free lump sum — formally the pension commencement lump sum — subject to an overall lump sum allowance of £268,275. Crucially, taking only tax-free cash:

• Adds nothing to your taxable income for the year, so it will not push your salary into a higher tax band; and
• Does not trigger the Money Purchase Annual Allowance (more on that below), so you can keep paying into your pension as normal.

That is why, for someone who is still working and still contributing, taking tax-free cash on its own is usually the least disruptive option. You can take it in stages rather than all at once — our article on taking your tax-free lump sum all at once versus in phases explains how phasing works.

Taxable income stacks on top of your salary

The moment you take taxable pension income — whether through flexi-access drawdown or an uncrystallised funds pension lump sum (UFPLS) — it is added to your earnings for the year and taxed at your marginal rate. If you are still working, that income sits on top of your salary, not alongside it.

For the 2025/26 tax year the income tax bands for England, Wales and Northern Ireland are:

• Personal allowance: £12,570 (0%)
• Basic rate: £12,571 to £50,270 (20%)
• Higher rate: £50,271 to £125,140 (40%)
• Additional rate: over £125,140 (45%)

So if you earn £45,000 and draw £15,000 of taxable pension income, roughly £5,000 of that pension money falls into the 40% higher-rate band — even though your salary on its own never would have. These thresholds are frozen until April 2031 following the November 2025 Budget, so as wages and pensions rise, more income is gradually dragged into higher bands. If your combined income approaches £100,000 you also begin to lose your personal allowance, creating an effective 60% marginal rate — something we cover in how to avoid the 60% tax trap in retirement. (Scottish taxpayers have their own income tax bands, which differ from those above.)

The method you choose — drawdown or UFPLS — also affects how the tax-free and taxable elements are split. Our comparison of UFPLS versus flexi-access drawdown walks through the difference.

The £10,000 trap: the Money Purchase Annual Allowance

This is the rule that catches the most people who keep working. Normally you can pay up to £60,000 a year into pensions (or 100% of your earnings, if lower) and receive tax relief. But the first time you take taxable income from a DC pension, you trigger the Money Purchase Annual Allowance (MPAA), which cuts how much you can contribute to DC pensions with tax relief to just £10,000 a year — and that reduction is permanent.

For someone still earning and still building their pension, that is a serious restriction, especially if your employer matches your contributions or you were planning to make larger catch-up payments before you retire. The triggers, and the most common ways people stumble into it, are set out in our guide to the £10,000 MPAA trap.

What does not trigger the MPAA:

• Taking only your 25% tax-free cash;
• Buying a lifetime annuity; or
• Cashing in a "small pot" worth under £10,000, which sits outside the MPAA rules.

Beware emergency tax on your first withdrawal

When you take your first taxable pension payment, your provider usually has to apply an emergency "month 1" tax code. This treats your one-off withdrawal as if you will receive the same amount every month for the rest of the year, which often means HMRC overcharges you — sometimes by thousands of pounds. The good news is you can reclaim it, either by waiting for HMRC to reconcile your tax automatically or by submitting the relevant form (P55, P53Z or P50Z). We explain the process in emergency tax on pension withdrawals and how to claim it back.

Questions worth asking before you draw while working

There is no single right answer — it depends entirely on your earnings, your goals and your wider finances. But these are the questions that usually matter most:

• Do I actually need the income now, or am I drawing simply because I can?
• Will taxable income tip me into a higher tax band once it is added to my salary?
• Am I still contributing? If so, would triggering the £10,000 MPAA cost me valuable tax relief and employer matching?
• Could I take only tax-free cash for now, and leave the taxable income until my earnings stop or fall?
• How will drawing early affect how long my pension lasts across a retirement that could run 30 years or more?

Working through these before you act can be the difference between a smooth transition into retirement and an avoidable tax bill.

If you are thinking about accessing your pension while still working, it pays to understand exactly what you would be charged and how your income could look. Use our pension drawdown calculator and retirement planner to model your options, compare provider fees and charges, or get in touch if you would like to speak to a regulated adviser.