Can I Take My Pension at 55 and Still Work? (UK 2026/27)

Yes. You can access a UK defined contribution pension from age 55 (rising to 57 from April 2028) and continue working full-time, part-time or in any capacity. The 25% tax-free lump sum is available, the rest can be drawn flexibly via drawdown or as taxable lump sums. The catch: if you take any taxable income beyond the tax-free 25%, you trigger the Money Purchase Annual Allowance (MPAA) which slashes your future pension contribution limit from £60,000 to £10,000 per year.

This is the framework and the trade-offs for the 2026/27 tax year.

What “accessing the pension” means

UK defined contribution pension freedoms (introduced April 2015) let anyone aged 55+ access a DC pension flexibly:

• Take the 25% tax-free lump sum in one go (up to the Lump Sum Allowance of £268,275 for 2026/27).
• Take 25% tax-free in stages — every withdrawal can have a 25% tax-free element.
• Drawdown — leave money invested, draw income as needed.
• Lump sums — take taxable amounts as occasional cash withdrawals.
• Annuity — buy a guaranteed lifetime income with some or all of the pot.
• Combinations of the above.

You can keep working in any role while doing any of these. There’s no requirement to retire or reduce hours.

The detailed rules are at gov.uk: pension freedoms.

The 25% tax-free lump sum

Up to 25% of the pension value can be taken tax-free. For a £400,000 pension, that’s £100,000 tax-free.

The lifetime cap on tax-free lump sums is the Lump Sum Allowance (LSA) of £268,275 for 2026/27. Pension values above £1,073,100 can have lump sums proportionally restricted (this is more relevant for very large pensions; most people will never hit this).

Importantly, taking the 25% tax-free lump sum alone does not trigger the MPAA. You can take the lump sum, keep working, and continue contributing up to £60,000 per year to pensions.

The lump sum can be:

• Taken in one go.
• Taken in stages — each withdrawal having a 25% tax-free element (called “UFPLS” — uncrystallised funds pension lump sum).
• Taken as part of crystallising the whole pension into drawdown.

The taxable 75%

After the 25% tax-free portion, the remainder of the pension is taxed as income at your marginal rate when withdrawn.

For someone earning £50,000 from their job and taking £20,000 of taxable pension income:

• Combined income: £70,000.
• Personal allowance (£12,570) used by job income.
• Basic-rate band (£12,570–£50,270) used by job income.
• Higher-rate band starts at £50,270.
• £20,000 of pension income all falls in the higher-rate band.
• Tax: £20,000 × 40% = £8,000.

The pension income is added to your existing income and taxed accordingly. PAYE applies through your pension provider — they withhold tax on each payment.

The MPAA trap

Here’s the major trade-off. If you take any taxable income from a DC pension (beyond the 25% tax-free element), you trigger the Money Purchase Annual Allowance:

• Your future DC contribution limit drops from £60,000 to £10,000 per year.
• Carry-forward of unused allowance no longer applies for DC contributions.
• The MPAA is irreversible — once triggered, it stays.

For someone planning to keep working and contributing to a workplace pension, the MPAA can significantly reduce future pension building. A £50,000 earner contributing 8% (£4,000) plus employer match — won’t hit the £10,000 cap. But a higher earner using salary sacrifice to push £30,000 into the pension each year would lose £20,000 of capacity.

The MPAA does NOT trigger if:

• You only take the 25% tax-free lump sum (no taxable income drawn).
• You take a small pot (under £10,000) as a one-off lump sum under specific rules.
• You take a defined benefit pension (DB pensions don’t trigger the MPAA on the recipient).

When taking the pension early makes sense

A few scenarios where accessing the pension at 55+ while still working is reasonable:

1. Mortgage clearance

Taking the 25% tax-free lump sum to clear a mortgage can be powerful — particularly if the mortgage rate is high (5%+) and you have ample remaining pension assets. Risk-free clearance of debt at 5%+ is hard to match elsewhere.

2. Reducing working hours

Some people use pension income to bridge the gap from full-time to part-time work. £20,000/year of pension income could let you drop to 3 days/week from a full-time role.

3. Children’s house deposit gifts

The 25% tax-free lump sum can fund significant gifts (subject to inheritance tax 7-year rule for very large amounts). Helping a child buy a first home is a common use.

4. Specific large purchases

Wedding for a child, home renovation, healthcare cost. The lump sum can cover these without taking on debt.

When it doesn’t make sense:

• You’re still aggressively contributing to a pension. Triggering MPAA cuts future capacity.
• You don’t need the money. Pension growth stays tax-free if untouched.
• Your tax band would be lower in retirement. Drawing taxable income now at 40% vs later at 20% is a 50% extra tax cost.
• You’re using it to invest in something risky. Drawn pension money loses the pension wrapper’s protections.

Defined benefit pensions

Defined benefit (DB) pensions work differently. They pay a guaranteed lifetime income from the scheme’s normal retirement age (often 60 or 65, depending on the scheme).

A few scheme-specific options:

• Many DB schemes allow early retirement from age 55 with an actuarial reduction (typically 4–5% per year early).
• DB schemes usually offer a tax-free lump sum option (often around 25%, sometimes less, with reduced annual pension in exchange).
• DB schemes don’t trigger the MPAA when accessed.

The decision to take a DB early is permanent and involves giving up income for life. Get regulated pension advice before deciding — this is a one-way door.

Worked example: 55-year-old higher earner taking lump sum

Robert is 55, earning £80,000, has a £400,000 DC pension. He wants to clear a £100,000 remaining mortgage. His decision:

Option A: Take 25% tax-free lump sum, clear mortgage.

• £100,000 tax-free lump sum withdrawn.
• £300,000 remains in pension, continues to grow tax-free.
• MPAA not triggered (only tax-free portion taken).
• Continues contributing 8% of salary (£6,400) plus employer 5% (£4,000) = £10,400/year. Within the standard £60,000 annual allowance.
• Net effect: mortgage paid off, pension capacity intact, ~£500/month saved on mortgage payments.

Option B: Take 25% tax-free + £20,000 taxable for “buffer”.

• £100,000 tax-free + £20,000 taxable = £120,000 total withdrawn.
• £20,000 added to his £80,000 income → all £20,000 falls in higher-rate band.
• Tax on £20,000: £8,000.
• Net taxable lump received: £12,000.
• MPAA triggered: future DC contributions capped at £10,000/year.
• Even worse — his current contributions of £10,400 already exceed the new £10,000 limit, so he’d need to reduce future contributions or face annual allowance charges.

Robert chooses Option A. The £20,000 buffer wasn’t worth the MPAA hit.

What about the 2028 age change?

From April 2028, the minimum pension access age rises from 55 to 57. People born after a certain date will need to wait until 57 to access. Some pension schemes have “protected pension ages” that allow earlier access — check your scheme rules.

Internal links

• What is the 25 percent tax free pension lump sum?
• How does pension tax relief work for higher rate taxpayers?
• What is the annual allowance for pension contributions?

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This guide is information, not regulated financial advice. Accessing a pension early is a one-way door for the MPAA — speak to a regulated pension adviser before triggering any taxable withdrawal.