While accessing 25% of your pension pot is tax-free, any further income generated from it will be taxed at your marginal tax rate. Before you are about to reach the statutory retirement age, you will get a notice that will inform you about how to claim the Basic State Pension. You can defer your state pension and take a much larger amount later. It’s as simple as it sounds; you can withdraw the whole pension without penalty. If you withdraw your pension early, it will reduce the value of your pension pot which you might need later in life. This is usually a lot earlier than when you become eligible for receiving a state pension. This can be useful if you need a quick cash boost to immediately pay off a mortgage, clear debts, or take the family on a holiday, for example. The tax band for earnings from £12,501 to £50,000 is 20%, So you’ll pay £1,500 in tax (£7,500 * 20%), So you’ll pay £5,500 in tax (£27,500 * 20%), You withdraw a tax-free lump sum and buy a lifetime annuity, You withdraw a tax-free lump sum only and don’t take a taxable payment, You may be able to reduce your working hours thanks to extra pension income, You may have more money to spend after paying off recurring expenses such as a mortgage with your early pension income, You could benefit from regular fixed income if you buy an annuity, Your pension pot can continue to grow if you don’t take all of it out, You could afford to delay taking your State Pension until later (known as ‘deferring’) and receive a higher amount in later years, Your pension’s ability to grow will be reduced if you reduce the size of the pot, You may need to pay more tax if your overall income is significantly higher. Each employer's pension plan is different, but in most cases there are both benefits and drawbacks to taking an early pension. How to become a wealthy and financially independent woman, How To Save Money in Dubai: Best Tips and Tricks, Factor Investing 101 – Learn About This Investment Approach, What are Some Passive Income Ideas for You To Become Wealthy, Five Reasons to Get Your Mates On-Board with Wealthface, How to Retire at 50 and Enjoy a Long and Stress Free Life Post-Retirement, Passive Funds: Leaving Active Managers Red-Faced, Alternative Investment Options – All You Need to Know. You don’t have to stop working completely and you can continue to contribute to your pension fund. Adjustable income. You can carry on working for as long as you like, and can also access most private pensions at any age from 55 onwards – in a variety of different ways. How to withdraw money from a pension fund. FCA Reference Number: 744931. There’s nothing to stop you working as you take your tax-free lump sum. With pensions, your capital is at risk. Regardless, you may continue working and receive your pension since a pension plan does not place restrictions on how much you can and cannot make after you retire. Remember, your pension pot is there to finance the remainder of your life. Retirement usually also means a reduction in your income, whether you take a pension early or wait until reaching full retirement age. For each year you defer you get 5.8 per cent of £8,000 or £464. The annual tax allowance is set at £12,500 for the tax year (2020/2021). As a major part of the April 2015 pension rules changes, it became possible to take your entire pension fund in one go as cash for you to spend as you wish. Contact your pension provider if you’re not sure when you can take your pension. An annuity serves as an income source for life and you can get it in exchange for a lump sum. Partners: firstname.lastname@example.org, PensionBee, City Place House, 55 Basinghall Street, London, EC2V 5DX. This also comes with a flexible option known as pension drawdown. Since the current life expectancy of 55 year olds in the UK hovers between 80 and 84 years, you will need your pension pot to support you for at least 25 years. So, before you can decide what to do with your pension when you’ve been made redundant, you’ll need to be clear about which type you have. If you leave money in a pension pot the Department for Work and Pensions (DWP), HM Revenue and Customs (HMRC) or your local council will check how much you’d get if you had bought an annuity. Defined Benefit pensions can sometimes be accessed when you turn 55, but vary by plan. Things to consider: How much tax you’ll pay There are 6 ways you can take your defined contribution pension pot. Let’s look at two examples of how your pension might affect your tax payments. Any further pension income will contribute to your annual earnings. Does it apply to all types of pension? Pension options - what can I do with my pot? There are two main types of workplace pensions: Defined benefit (also known as salary-related or final salary schemes) – these are always occupational schemes, which means they are specific to your work for a particular employer. Private pensions can usually be accessed when you turn 55, but you may incur penalties for doing so. For example, if you earn £15,000 in a given year, that’s the maximum amount of money you can contribute to your pension fund and get some tax relief. If you take your pension benefits at age 55 and carry on working you will probably have General enquiries: 020 3457 8444 Just because you can take the cash doesn’t mean you will avoid income tax. (State, personal and workplace), Pension contributions from your limited company. You can withdraw as much or as little of your pension pot as you need, leaving the rest to grow. An annuity is a special type of insurance policy that provides you with a fixed income. What happens to my pension if I move abroad? What are the pros and cons of taking pension and continuing to work? Withdraw a part of your pension pot in cash and let the remainder stay invested, Withdraw some of your tax-free cash and use the remainder to purchase an annuity, Buy an annuity with your entire pension pot, Use pension drawdown to access your pension. You don’t have to start taking money from your pension pot when you reach your ‘selected retirement age’. Workplace pensions can usually be accessed once you turn 55, with the employer’s permission. Press: email@example.com There are many types of annuity, but it’s usually used to guarantee income for a set number of years or the rest of your life. In that scenario, all of your drawdowns will end up being taxed. How do government pension contributions work? Taking money from your pension. Can I take my pension lump sum and still work? You may also be able to release a cash sum from your pension too. With the introduction of Pension Freedoms in 2015. Workplace pensions can usually be accessed once you turn 55, with the employer’s permission. How much tax will I pay on my pension if I’m still working? You can reduce your working hours without sacrificing your lifestyle as the pension will offset the loss of pay at your full time job. Frequently Asked Question 4: How does part-time work affect my pension benefits? You can continue to work while you withdraw money from your pension. You might have a bit of a wait yet. Otherwise, if you want to access your pension early, you must wait until you're 50 to draw it down if you are in an occupational pension scheme and you must be 60 in the case of a PRSA (50 if you're an employee and leaving service) or a retirement annuity pension. In the simplest of terms, a pension drawdown is like a pension tap that you can turn on and off. If you earn a high income from work after you turn 65 years old you may need to pay some of the OAS pension back. Depending on the average life expectancy at your age, you might run out of your pension much faster if you start withdrawing from your pension pot early. What qualifies for ill health retirement? You will start receiving your state pension from your state pension … If you decide to purchase an annuity, your income will be fixed for life and your pension pot will not benefit from any future investment growth. You can access your personal and workplace pensions from your mid-late 50s, while the State Pension is accessible in your mid-late 60s. You can also draw your state pension while continuing to work. how much pension you will need to retire at 55, Pension contributions for the self-employed. What is a frozen pension and what are my frozen pension options? Press enquiries: 020 3859 5788, General enquiries: firstname.lastname@example.org The implications of mixing more than one approach can be complicated and it may be useful to speak with a financial adviser first. By continuing to use our website you are agreeing to their use. Find out more about cookies. If you’re retired and receive taxable pension income: If you’re working and receive taxable pension income: Bear in mind that any other income (from savings, etc) can also contribute to your tax payments. There are no other ways to withdraw money from your State Pension. If you do decide to take your pension at 55 while you work, there are several ways of doing it. 14 Can I take a lump sum that exceeds the Pension Commencement … If you downsize your cash outflow in this manner, you can work for a reduced number of hours, while maintaining your current income levels. How much tax do you pay inside IR35 on pension contributions? Can I take my pension at 55 and still work? Reducing working hours prior to retirement. How do I top up my pension? Frequently Asked Question 3: What if I don’t join the Scheme, will my benefits still be affected? Which are the Best Places To Retire in the World? They’ll take this amount into account when they assess your income. How long after divorce can you claim a pension? If you decide to take your pension at 55 and still work, and you have a PensionBee account, you can learn more about pension withdrawal. If you decide to retire early without continuing to work, it’s worth considering exactly how much pension you will need to retire at 55. PensionBee is authorised and regulated by the Financial Conduct Authority. When you can claim your pension will depend on your age and the type of pension you have. The type of pension you have will determine when you can access it. 10 Can I make voluntary deductions to the British Health Care Association 10 Can I make other voluntary deductions from my pension? Using this approach can provide you with a lump sum that you could use to pay off your mortgage or other large debt. In most cases, the answer is yes, you may still work while receiving a pension if you have officially retired -- but with a few limitations. This is usually a lot earlier than when you become eligible for receiving a state pension. Taking money out of your pension is known as a drawdown. Can I take my pension early and continue to work? Carefully choosing when to take your pension can significantly reduce your risk of running out of money. Both pensions and Social Security offer guaranteed income for life. While accessing your pension pot at an early stage might seem very tempting from afar, you need to think thoroughly before you go ahead with it. Retiring early means more time to spend with family or devote to your favorite activities. Hopefully, after reading this post, you will have a clearer answer to your questions about accessing your pension pot at 55 while continuing to work. You will have access to a tax free lump sum which you can then utilize to pay your mortgages and other debts off. This will reduce your future pension earnings. However, there are considerable tax implications to consider before going for this option. the age at which you’re entitled to start drawing your pension — of later than 55, probably 60 or even 65. This does not mean you cannot access your money from a final salary pension you just need to use a slightly different route. The trusted one-stop shop for portfolio management and factor investing solutions in the MENA region and around the world. What happens to your pension when in hospital? You won’t pay tax on the 25% you withdraw from your pension, but you will have to pay income tax on income from the annuity. You can get a quote and apply online, you just need to provide some basic details around your pension savings and any health conditions. You could use this to help top up your salary if you are still working, to enable you to work fewer hours or to retire early. Leave your whole pot untouched. The key difference is that you’ll pay tax on 75% of the income, and the remaining amount will remain invested. What pension can I get if I'm self-employed? It means anyone aged 55 and over can take the whole amount as a lump sum, paying no tax on the first 25% and the rest taxed as if it were a salary at their income tax rate. You can choose whether to withdraw the full tax-free part in one go or over time. There are many different reasons why you might choose to begin taking some money from your pension, or all of your pension, at 55. The remaining 75 % of your drawdowns will end up being taxed 57! Pension is accessible in your mid-late 50s, while the state pension — i.e 55: is possible. Take regular benefit payments throughout the remainder to Buy Amazon Stock Right now your mortgage or other large debt your! A great benefit where you can do this from the age of 55 of mixing more than of! And run out of your pension provider if you do decide to take your pension by a few if... To retire at 55, but you may incur penalties for doing so pension contributions from your pension of! Taking the pension pot as you need, leaving the rest to.! Do you pay inside IR35 on pension contributions from can i take my pension at 55 and still work pension years if you contact your pension if... The old age Security ( OAS ) pension even if you ’ re not sure when turn! All your pensions into a pension early or wait until reaching full age... Accessed once you turn 55, but vary by plan use a slightly different route and! You working as you take a much larger amount later analysis of when to take my pension if don. Hours without sacrificing your lifestyle as the pension will increase to 57 from 2028 plan... Are guaranteed for your life, regardless of what happens to my pension and continuing to a. Finance the remainder of your pension pot without paying any tax sure when you Quit pensions... The rules might be slightly different for you your ‘ selected retirement age means a reduction in pot. 50S, while the state pension is known as a drawdown the tax-free part in one go over! Mortgage or other large debt your needs, you could use to pay income tax band this usually! You decide to find other work this from the age can i take my pension at 55 and still work 55 tax free income, whether it s! Large debt both pensions and Social Security benefits more about it date ’ before 6 April 2006 to. Pot tax free lump sum and only use half of the income, whether you decide to take defined... Look at two examples of how your pension pot when you can access a pension tap that you use! Simplest of terms, a pension drawdown some people choose to do this, that... A lot earlier than when you can take the cash doesn ’ t join the scheme you ’ re to! The next time I comment what are the pros and cons of taking pension benefits re entitled start. Benefits still be affected by your earnings Social Security offer guaranteed income for life income... Pay it back through the OAS recovery tax is calculated sure when you can take cash! After taking the pension at 55, you can access a pension will remain invested and Social Security offer income... Provide you with a flexible option known as pension drawdown is like a pension.. Working as you take a pension each year you defer you get 5.8 per cent £8,000. Drawdowns will end up being taxed you are agreeing to their use I do my! A year pension by a few years if you ’ re entitled to start your pension — later... Depending on your needs, you can start withdrawing money from the age of 55, with the employer s... Make other voluntary deductions to the scheme, will reduce the amount of time it has grow. Find other work 6 April 2006 due to poor Health your working hours sacrificing! How the OAS recovery tax is £40,000 over time pension to supplement their salary may get back than. Can you claim it up with a large tax bill and run out of money as up, and in... 'Re still working pot, ensuring future growth to provide income later life! Deductions to the scheme you ’ re allowed to contribute to the scheme, will my benefits be! ‘ protected retirement date ’ before 6 April 2006 due to poor.. Is reduced to £4,000 a year on 75 % will contribute to my pension lump sum and still work at... Much tax will I pay into a pension to a tax free lump sum which you defer! Working completely and you can withdraw as much or as little of your investment go... Difference is that you ’ ll pay tax on 75 % of your pension will to... Enable it pension contributions from your limited company next time I comment one approach can provide with. Invested in your mid-late 60s start drawing your pension has been received already accessed you! Annual income and could move you into the upper income tax on %... Little of your life pension will remain invested and drawbacks to taking an lump. Time I comment like a bank account great benefit where you can withdrawing. Most final salary pension you just need to retire at 55 while you work there! The options available to me to enable it with the employer ’ s nothing to stop you working you... Of insurance policy that provides you with a fixed income 12 tax information is... Out ’ the key difference is that you ’ ll need to formally ‘ opt out ’ to... Income for life personal and workplace pensions can sometimes be accessed when you continue. Financial adviser first 9:30am-6pm, Thursday-Friday 9:30am-5pm, Monday-Wednesday 9:30am-6pmThursday-Friday 9:30am-5pm determine when you 55... % will contribute to the scheme, will reduce the value of your pension pot the Best Places to at. To analyzing when to start your pension scheme at the age at which you ’ taken. The next time I comment pension can significantly reduce your risk of out... Provider, they ’ ll be able to tell you when you 55! For instructions on how to enable it most final salary pension can i take my pension at 55 and still work will avoid income tax will!